NFP will leave a long-lasting impression

5 April, 2017

The Australian regulator is riven by contradictions. On the one hand, the economy requires lower rates to fight the unemployment and sluggish wage growth; on the other hand, the potential overheating of the real estate market requires a tightened access for the household borrowings. The RBA left the rate unchanged but took swipes at the banks issuing uncontrolled mortgages seeking to meet demand, while often overestimating the reliability of a borrower. Leaving the rate at 1.5%, the head of the RBA Lowe pointed out that the economy needs diversification – a reduction of the traditional resource sectors shares.

The official stressed that he would like to see signs of improvement in the labour market before talking about the general strengthening of the economy. However, the main cause for concern remains in the real estate market. The availability of cheap credit only widens the gap between the growing mortgage debt of the population and the growth of household incomes. For example, over the past twelve months, the mortgage growth was 6.5% comparing to the 3% increase in wages. This trend, coupled with the rising housing market prices, is a legitimate concern for the officials that service mortgage debts as the may begin to deteriorate.

Futures for the WTI successfully bounced from the support of $50 on Tuesday, what fuels hopes for the extended growth. Investors expect data on reserves from the API and the EIA, but if the stockpiles grow above forecasts, disappointment is likely to be short-lived, as rumours of OPEC’s pact extension continue to outweigh other negative factors.

The European currency and the British Pound were short of a bullish momentum, falling amid the strengthening Dollar. The forecast of four rate increases this year is not yet ruled out by the investors’ expectations, which is the main catalyst for the growth of the greenback. Downbeat FOMC protocol may trigger a rollback to the level of 100, but the NFP report which is due to Friday will probably set a long-lasting trend for the Dollar along with the inflation data.

Precious metals and the Japanese Yen are growing amid dampening appetite for risk. The reason for the frustration was the weak data on sales of automakers, as well as the continued uncertainty with the FED policy. This is also confirmed by steady growth of the VIX volatility index since last Thursday.

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