6 April, 2018
Friday’s session is expected to be volatile, with Non-Farm Payrolls (13:30 UK Time) ahead and President Trump’s proposal for an additional $100B of trade tariffs for China affecting markets. The President instructed Treasury to consider the move, which would bring tariffs against China to $150B. This sent US stock markets lower and USDJPY from 107.430 to the 107.000 area before it rebounded higher to erase the loss. This is partially to do with positioning ahead of the NFP, which is expected to show an additional 190K jobs added after a stellar 313K last month. Average Hourly Earnings are expected to tick up to 0.3% from 0.1%. The move up to 0.3% caused a selloff in February on fears of inflation. With the US 500 Futures Index down -1.16%, disagreeable jobs data could deepen the selloff.
The response from China to the US tariff proposal has been swift, with Japan’s chief cabinet secretary, Suga, saying it is important for China and the US to build a relationship that leads to stable growth and development of the global economy. The Chinese have responded saying that the US is recklessly wielding the stick of protectionism and they will only miss an opportunity to resolve the problem. China’s resolve to protect global trading rules is strong and if the US insists on acting willfully, China will fight until the end. This was tempered by the comment that China’s door for trade negotiation is still open. China’s Commerce Ministry said that the trade war is caused by the US and that China does not want a trade war.
In a move that shows the potential damage this course of action could have on the domestic US economy, US Department of Agriculture Undersecretary Northey said that the department is “going to find ways to attempt to hold harmless the agriculture sector” from trade conflict with China. Soyabeans have been targeted in China’s response and if the US has to subsidise its farmers, the negative impacts of the trade war will only grow.
Spanish Markit Services PMI (Mar) came out at 56.2 against an expected headline number of 56.0, from 57.3 prior. The consensus was for a further softening from the high created in July at 58.3 and the data was as expected. However, the data has shown a strong rebound in February and March, exceeding expectations on both occasions. The data is down from its 2015 high of 60.3. EURUSD moved higher from 1.22505 to 1.22705 after this data release.
Swiss Consumer Price Index (YoY) (Mar) was 0.8% v an expected 0.7%, against the previous 0.6%. This shows a continued move higher in inflation. GBPCHF fell from 1.35289 to 1.34939 led by this data.
German Markit Services PMI (Mar) came out at 53.9 against an expected headline number of 54.2, from 54.2 previously. After reaching a multi-year high of 57.3 in February, this data has come back into its range under 56.0. German Markit PMI Composite (Mar) was 55.1 v an expected 55.4, from a prior number of 55.4. The weather is being partly blamed for the drop in these numbers, alongside a particularly bad Flu season. EURUSD moved higher from 1.22532 to 1.22832 as a result.
Eurozone Markit Services PMI (Mar) came out with a headline number of 54.9 v a consensus of 55.0, against 55.0 previously. This figure was expected to slip back after hitting a high of 58.0 in February, but the fall was only marginal and still in line with expectations. Markit PMI Composite (Mar) was 55.2 v an expected 55.3, from a prior number of 55.3. EURGBP moved higher from 0.87191 to 0.87372 after this data release.
UK Markit Services PMI (Mar) was 51.7 v an expected 54.0, from 54.5 previously. This data is continuing to decline from its 2013 high of 62.5 and fell below the 53.0 level with this release, showing modest growth but putting the 50.0 level in focus. It is hoped that the data for April will show improvement as the weather picks up. GBPUSD moved up from 1.40300 to 1.40673 after this release.
US Trade Balance (Feb) was $-57.6B v an expected $-56.8B, against $-56.6B previously, which was revised down to $-57.7B. This shows a further decline to 2008 levels. Continuing Jobless Claims (Mar 23) were 1.808M v an expected 1.849M, against a previous 1.871M, which was revised up to 1.872M. Initial Jobless Claims (Mar 30) were 242K v an expected 225K, from 215K previously, which was revised up to 218K. These jobs figures indicate that Unemployment is at the lowest levels in years, with strong positive implications for the US economy. The move up in Initial Jobless Claims is being attributed to the Easter holidays and Spring breaks. GBPUSD moved higher from 1.40046 to 1.40292.
Canadian International Merchandise Trade (Mar) was $-2.69B v an expected $-2.00B, against a previous number of $-1.91B, which was revised down to $-1.94B. This fall was down to a record drop in Agricultural Exports. USDCAD fell from 1.28001 to 1.27826.
US FOMC Member Bostic spoke about financial literacy at the University of South Florida, in Sarasota. He said that he sees financial stimulus having a robust impact in the short run. He sees inflation hitting 2% in the next quarter or two and is comfortable going over 2% inflation by some amount. He sees the natural rate in the 2.25% to 2.75% range. Trade protectionism tends to be difficult for economic growth.
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