This week’s US data is expected to continue pointing towards a strong economic picture according to analysts at Nomura. Regarding the nonfarm payrolls (NFP), Nomura analysts are looking for a 115k gain on the heels of a weather-related 313k surge in February. Despite the low March forecast, the expected monthly NFP gains may reach an average of 220k in Q1 2018. While we also expect the unemployment rate to fall 0.1pp to 4.0% in March, there is a risk it could possibly slip further to 3.9%. Finally, we forecast a steady 0.2% m-o-m increase in average hourly earnings (AHE), reflecting our view that any pickup in AHE will be slow and gradual. The also expect business optimism to remain elevated. For March ISM surveys the forecast continued elevated readings, consistent with steady economic momentum to close out Q1. While incoming spending data have been somewhat weaker than expected, survey indicators have remained buoyant so far this year. The one relatively conservative forecast for next week, besides our below-consensus NFP expectation, is March vehicle sales. Sales are expected to slow further to a pace of 16.8mn saar, below last month’s 17.0mn.
In addition, the past week was relatively quiet in Washington as Congress was on recess and the President did not make any new major policy announcements. On trade, the US has become much more conciliatory towards NAFTA and is now pushing for wrapping up the negotiations quickly. Put another way, the probability that the US withdraws from NAFTA has declined. Last week, the US and South Korea reached an agreement in principle to modify KORUS (the Korea-US free trade agreement). That agreement specified that South Korea would limit its steel exports to the US (effectively a quota) and would also allow more US manufactured vehicles into its market. This week we will likely see the list of products that USTR puts forward to be subject to tariffs from the Section 301 action on China’s intellectual property policies. After publishing the list, there will be a 30-day public comment period. However, the theme that the Trump administration has become less hawkish on trade appears to hold for the 301 action as well: senior administration officials have engaged in negotiations with China to reduce tensions and avoid possible trade escalations between the two countries.
Looking at the economic situation in Europe, last week we have seen that The German 10-year bond yield dropped 20 basis points in the last 30 days, while the Spanish bond yield has tanked 50 basis points in February. Further, the EONIA futures witnessed a key bullish breakout. Clearly, the investors are pricing-in a delay in ECB tightening.
In addition, In the middle of next week, Italy’s President Mattarella will begin consulting with party leaders to see if a majority government can be formed. There are four key players here. The center-left PD, whose leader, Renzi, insisted that it goes into opposition have a horrific showing in the polls before resigning. The center-right accounts for two of the players Berlusconi’s Forza Italia and the Northern League (Salvini). The Northern League edged out Forza Italia by four percentage points and so it’s ostensibly the senior party in the coalition. The Five Star Movement (M5S) won a plurality of votes, but not a majority. There are a few more wrinkles in the plot. First, due to a tax fraud conviction, Berlusconi cannot serve hold office until 2019. Second, Berlusconi had campaigned only force that could stop the populist M5S. This further strains ties between the two camps. Third, Salvini of the Northern League has stuck with Berlusconi and is resisting M5S from pulling them apart. Fourth, Berlusconi and Salvini are opposed to the head of the M5S, Di Maio, from becoming the next premier, which he seems to believe he is entitled to as the head of the party with the most votes. Next week will be a month since the Italian election. While the situation seems fluid and it may be premature to reach any strong conclusions, the outlook is not particularly encouraging. -FXStreet
The EUR/USD is declining ahead of the European markets, testing around 1.2320. Overall movement has been low with restrained holiday volumes, and the European market will likely be a similarly empty affair with key markets from Germany and the UK still dark for Easter Monday celebrations. -FXStreet
The GBP/USD pair kicked-off a new week/ quarter on the front foot in the Asia trades, as the bulls looked to extend Friday’s rebound from just ahead of the 1.40 handle amid broad-based US dollar weakness and a risk-friendly market environment. -FXStreet
The USD/JPY dropped on reaction following Japan’s Taikan Manufacturing indicators, and the pair is back into 106.25 after falling from 106.40. The Japanese Taikan Manufacturing Outlook and Index indicators missed expectations and the Yen saw a brief spike in volatility as traders hesitated at the start of the week. -FXStreet
The bright metal retreated sharply this week, after risk-averse sentiment sent it near the yearly high. -FXStreet
ECONOMIC CALENDAR EVENTS FOR APRIL 2nd
CAD Manufacturing PMI
USD Final Manufacturing PMI
USD ISM Manufacturing PMI
USD Construction Spending m/m
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