CURRENCY OUTLOOK - APRIL 2017

Transcription

1 CURRENCY OUTLOOK - APRIL 2017 afex.com

2 / Trevor Charsley - Senior Markets Analyst March lookback GBPEUR lost some 1.5% on the month and certainly not as much as could have been reasonably expected before the triggering of Article 50. The logic behind a weaker pound and stronger Euro has of course been Brexit, but also an increase in European inflation levels and improving economic data in the form of Purchasing Managers Index (PMI) data. German headline inflation was as high as 2.2% in February, a level not seen since August Germany has been openly asking for the ECB to consider tapering its Quantitative Easing (QE) policy. Manufacturing PMI was reported at 56.2 compared to the expected 55.3, Services PMI was reported at 56.5 compared to the expected This data pushed GBPEUR lower, however at the end of the month the ECB pulled the rug from under the Euro s feet by saying that the market was misinterpreting its recent messages and that it was very concerned about higher yields. (i.e. ECB still wants low interest rates) German CPI for March was also lower than expected at +1.6% and these factors have weakened the single currency. The Dutch elections saw the far right Freedom party do badly and this calmed the market. April 2017 UK events Fundamental data Base Rate: 0.25% +2.0% YoY 2.3% YoY Unemployment: 4.7% Current account: billion QoQ Now that Article 50 has been triggered the market will look to both economic and political news for direction. We also should not forget the markets positioning which is showing the IMM holding a short position equivalent to 6.75 billion. Also, this position does not include the sterling sold in the cash markets so it can be concluded that when GBPUSD falls it could have many speculators who will be happy to buy it. In this case any move lower from here could be a slow one, and certainly different from the fall experienced last June. Specifically regarding Brexit, the UK Government has asked for a new trade treaty to be agreed alongside the departure terms as well as implementation periods (being time for business to operate under current EU rules before changing to new agreed rules) for certain industries. With the EU insisting on a Euro 60 billion exit fee before a new trade treaty is even started to be discussed and the first negotiations to have been pencilled in for June 2017, there is plenty of potential for the UK economy to slow down and with it for sterling to fall in the medium term. Mon 3 Apr Manufacturing PMI Wed 5 Apr Services PMI Tue 11 Apr CPI YoY Fri 21 Apr Retail Sales MoM Tue 4 Apr Construction PMI Fri 6 Apr Manufacturing Production MoM Wed 12 Apr Average Earnings Index 3MoY Prelim GDP QoQ

3 /$ Trevor Charsley - Senior Markets Analyst March lookback Initial defeat for the government in the House of Lords over the Brexit bill and calls from Scotland s First Minister Sturgeon for another Scottish independence referendum, slightly delayed the triggering of Article 50 to March 29 th. The last spring budget on March 8 th saw Chancellor Hammond try to raise National Insurance on the selfemployed from 9% to 11%, but he was forced into an embarrassing U turn as this move led to a country wide outcry. The market sold GBPUSD to a new 22 year record for short positions on the IMM (Reuters), as it considered the negative ramifications of the triggering of Article 50 including repeated calls from the EU for the UK to pay a Euro 60 billion leavers fee. As the House of Lords have ruled that after the UK leaves it is not responsible for any future payments to the EU, (except those specifically agreed) then this leavers fee could easily be a sticking point in negotiations. After being sold the pound bounced on the back of Bank of England concerns over inflation with Consumer Price Index now at 2.3% and retail sales data coming in at +1.4%, suggesting that the UK consumer is still spending. April 2017 US events Wed 5 Apr ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI, Crude Oil Inventories, FOMC Meeting Minutes Fri 7 Apr Average Hourly Earnings MoM, Non-Farm Employment Change, Unemployment Rate US $ Fundamental data FED funds: 0.75%-1.00% +2.1% QoQ +0.1% MoM Unemployment: 4.7% Trade balance: -$48.5 billion Thu 13 Apr PPI MoM Unemployment Claims Tue 18 Apr Building Permits The Fed said it was going to hike US rates in a gradual manner and that is precisely what it has done. However, the US Dollar has not reacted in textbook fashion to this move, with the US Dollar index falling 3% and the US equity markets tumbling 3.5%. After the unsuccessful attempt to reform Obamacare President Trump and his administration have now turned their gaze to tax reform, with US Corporation tax at 35% some are saying it is ripe for change. However, the market is now concerned about President Trump s ability to get his changes through Congress, this is weighing upon US Dollar sentiment. The economic picture tells a different story as US jobs data has been very positive the last two months with increases of 253k for February and 227k in January. Consumer price inflation has also been averaging some monthly increases of +0.35% for the last four months, if these two important sets of economic data continue to show similar levels of improvement then the market may start to price in a quickening pace of rate hikes this year. (Please see GBPEUR for Sterling releases) Thu 20 Apr Philly Fed Manufacturing Index, Unemployment Claims Wed 26 Apr Crude Oil Inventories Advance GDP QoQ Mon 3 Apr ISM Manufacturing PMI Thu 6 Apr Unemployment Claims Wed 12 Apr Crude Oil Inventories Fri 14 Apr CPI MoM, Core CPI MoM, Core Retail Sales MoM, Retail Sales MoM, Prelim UoM Consumer Sentiment Wed 19 Apr Crude Oil Inventories Tue 25 Apr CB Consumer Confidence Thu 27 Apr Core Durable Goods Orders MoM, Unemployment Claims

4 /$ Trevor Charsley - Senior Markets Analyst March lookback Last month the market was pricing in event risk in the shape of the Dutch elections. Ultimately Geert Wilders the leader of the Freedom party, gained five more seats than in the previous parliament but didn t manage to gain as many seats as predicted, Mark Rutte the former Prime Minister won the most seats for the People s Party and said that Wilders movement was the wrong sort of populism the market stopped buying German bunds for safety and heaved a sigh of relief. With economic data improving (please see GBPEUR for details) the Euro found some support early in the month. President Trump also couldn t get his healthcare reform bill through Congress and therefore this Euro strength was exacerbated until the end of March when the ECB combined with a surprise lower German inflation reading to weaken the Euro. April 2017 EU events Fundamental data Base Rate: -0.4% +0.4% QoQ +1.5% YoY Unemployment: 8.5% Trade balance: billion MoM Emmanuel Macron is now leading Marine Le Pen in the French opinion polls. Although the market doesn t trust the polls anymore and some are saying that there is a huge 40% of undecided voters available for the candidates to win over, it has stopped pricing in a possible Le Pen victory in the French presidential elections. The first round for French elections takes place on April 23 rd which sees all but two candidates excluded and the final election round takes place on May 7 th. Francois Fillon the centre right candidate has lost support over his embezzlement fiasco and is unlikely to get through to the second round. The market has been buying EUR recently on the back of stronger inflation and PMI data. However, the ECB is still sticking to its ultra-easy monetary policy. In this case the ECB minutes will be important as the market gauges if or when the ECB will start normalise policy. Although last month s surprise lower German inflation reading is being attributed to a lower oil price and late Easter bank holidays in Germany, the reading of +1.5% for March will not encourage the ECB to change its policy anytime soon. The Consumer Price Index released on April 28 th will also be an important factor here. Tues 4 Apr Retail sales MoM Fri 7 Apr German trade balance Tues 11 Apr Industrial production MoM Wed 19 Apr Final CPI YoY Sun Apr 23 French presidential election Thu 27 Apr Minimum Bid Rate ECB Press Conference Thu 6 Apr ECB MPC meeting minutes Tues 18 Apr German ZEW economic sentiment Fri 21 Apr Flash services PMI Mon 24 Apr German IFO Business Climate CPI and core CPI flash estimate YoY

5 March lookback AUDUSD opened and closed the month at very similar levels despite at one stage falling 2.5% and then making a new three month high. The move lower was caused by poor trade data and weak metal prices at the start of the month, before pushing higher on the back of US Dollar weakness caused by President Trump s defeat in Congress over healthcare reform. A possible storm cloud is brewing for the commodity currencies in the United States approach to global free trade, this was seen at the G20 meeting with the US insisting on the exclusion of a clause relating to the non- adoption of protectionist policies. Canadian core retail sales were a big positive for the Loonie coming in at +1.7% MoM against expectations of +1.3%. However, the fall in the oil price pressured the Loonie as well. The Reserve Bank of New Zealand kept interest rates steady and added that monetary policy would remain accommodative for a considerable period of time. April 2017 RoW events Tue 4 Apr AUD Trade Balance, AUD Cash Rate, AUD RBA Rate Statement, NZD GDT Price Index, CAD Trade Balance RoWTrevor Charsley - Senior Markets Analyst AUD economic data Official Cash Rate: 1.5% +2.4% YoY +1.5% QoQ Unemployment: 5.9% Current account: -AUD billion QoQ Wed 12 Apr CAD BOC Monetary Policy Report, CAD BOC Rate Statement, CAD Overnight Rate, CAD BOC Press Conference Tue 18 Apr AUD Monetary Policy Meeting Minutes, NZD GDT Price Index (tentative) The first week of April sees a meeting between US President Trump and Chinese Premier Xi. In his pre-election campaign Trump was very vocal in his criticism of China and its unfair protectionism when relating to trade, so he will be duty bound to make his criticism clear to Premier Xi. Any friction here could easily knock global trade and therefore will not be good for commodity currencies, this will be a keenly watched meeting. We have the Reserve Bank of Australia meeting on April 4 th and the Bank of Canada on April 12 th, although we expect no change to interest rates from either central bank. It is worth keeping an eye on the oil price as well as there is still stockpiling from the US fracking industry which weighs upon the black gold. Helping support it is the rumour that Opec could extend its production cut deal. Thu 20 Apr AUD Employment Change AUD Unemployment Rate Wed 26 Apr AUD CPI QoQ AUD Trimmed Mean CPI QoQ Mon 3 Apr AUD Retail Sales MoM Fri 7 Apr CAD Employment Change, CAD Unemployment Rate Fri 14 Apr CAD Manufacturing Sales MoM Wed 19 Apr CPI QoQ Fri 21 Apr CAD CPI MoM CAD Core Retail Sales MoM CAD GDP MoM

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