Analysts and investors appear certain that the Fed will engage in two interest rate rises in 2017 (the first announced at next week’s Fed meeting), based on the loose forward guidance delivered by Janet Yellen on Friday, during which she appeared to deliver a hawkish tone. As a consequence the markets (for once) appeared to engage in classic orthodox, RORO (risk on risk off) behaviour; equities falling in anticipation of the rate rise, with the U.S. dollar rising.
The DJIA fell by 0.24% on Monday, the SPX by 0.33% and the Nasdaq by 0.37%. Trading in New York on the SPX was thinner than usual; 12% below the thirty day average. In terms of economic calendar news the USA published some encouraging data; factory orders for January beating expectations of 1%, coming in at 1.2%, whilst durable goods orders came in at 2%, beating expectations of a 1% rise. In wider news Snap Inc, the snapchat creators, fell by 12.26%, erasing its IPO gains.
European economic calendar data published on Monday was mixed, whilst markets sold off as did the euro, versus several of its peers. The European Sentix sentiment index reading was 20.7, previously at 17.4. Germany’s construction PMI for February came in ahead of forecasts at 54.1, as did retail PMI, coming in at 52.1. However, the overall retail PMI for Europe disappointed at 49.9, as did France’s retail PMI coming in at 51.7, with Italy’s at 45.5. Euro STOXX closed down 0.47%, DAX down 0.57%, CAC down 0.46% and the UK’s FTSE down 0.33%.
EUR/USD fell by 0.40% to $1.0576, after previously reaching a two week high in the European session. The political issues; regarding the upcoming French and Dutch elections, are beginning to effect investor sentiment. The dollar made similar (0.4%) gains versus sterling and the Swissie, GBP/USD closing out the day at circa 1.2237, with USD/CHF at 1.0122. USD/JPY slipped to 113.98, retreating from Friday’s two week high of 114.75. After retreating to a one week low early in the European trading session, the dollar index then finally edged up by 0.1%, versus its basket of peer currencies in the New York session; DXY ending the day at approx. 101.66.
Political issues and fears regarding the UK’s March “article 50” Brexit timetable and narrative, also contributed to sterling’s fall versus its major peers, EUR/GBP ending the day close to 0.8642, the weakest reading for sterling seen since January 19th. Suddenly, the many analyst forecasts for sterling parity with the euro and 1.17 with the dollar, are looking realistic, as the reality of the UK’s isolationist dilemma begins to take shape.
Economic calendar events for March 7th, all times quoted are London (GMT) time.
07:00, currency effected EUR. German Factory Orders s.a. (MoM) (JAN). The forecast is for a reading of -2.5%, from 5.2% previously. Although a reversal into negative territory appears dramatic, this may be a seasonal issue.
07:00, currency effected EUR. German Factory Orders n.s.a. (YoY) (JAN). The annual growth is predicted to come in at 4.3%, from 8.1% previously.
10:00, currency effected EUR. Euro-Zone Gross Domestic Product s.a. (YoY). The prediction is for the Eurozone’s GDP to have remained steady at 1.7%.
13:30, currency effected USD. Trade Balance (JAN). the forecast is for the USA’s trade balance for the month of January to have deteriorated to -$48.0b, from -$44.3b previously.
20:00, currency effected USD. Consumer Credit (JAN). Consumer credit is expected to have risen to $17.200b, from the $14.160b in December.