The USA main equity markets experienced positive gains on Thursday, apparently as a consequence of the suggested divergence in monetary policy between the ECB and the Fed; ECB representatives indicating a dovish stance (keeping interest rates low and QE/asset purchase schemes alive), whilst several Fed official on Thursday indicated that a hawkish tightening on policy may be forthcoming, with up to four interest rates rises possible in 2017. How this tightening and rotating out of equities into other investments, could be deemed healthy for equity values is anyone’s guess, presumably it’s the translation that the Fed (and investors) see the USA economy as healthy enough to withstand such rapid successive rises (with inflation pressures also building up), which caused the small optimistic rally, termed “reflation trades”, witnessed on Thursday.
Perhaps our fellow analysts were looking too deeply into the narrative from the Fed, whilst ignoring the basic economic calendar news; USA GDP data for the last Q of 2016 beat expectations, by coming in at 2.1%, beating the 3rd Q reading of 1.9%. 4th Q consumer consumption also rose by a significant 3.5%, suggesting that all is well in terms of USA sentiment; consumer spend accounts for circa 80% of the USA economy.
Continuing unemployment claim numbers and weekly claim numbers did disappoint however, coming in at 2052k and 258k respectively, indicating that, as Mrs Yellen intimated yesterday; there are still highly resistant pockets of unemployment in the USA, perhaps a euphemism for employment has reached its peak and the extremely low (by historical standards) labour participation rate should still be a cause for alarm.
The DJIA closed up 0.33% and at 20,728 has now reclaimed circa 300 points since Monday’s recent low which caused such unnecessary consternation, despite the fact the DJIA only breached 20,000 for the first time in January. The SPX closed up 0.27%. WTI oil rallied to at one stage break through the critical psyche handle of $50 a barrel, to end the day at circa $49.96, a renewed commitment from certain OPEC members to cut production and the momentum from the USA stockpile reduction reported on Wednesday, causing the sustained rise. Gold threatened to breach S3, slumping to end the day at approx. $1243 per ounce, from its weekly high of over $1260 printed on Monday, as investors rotated out of PMs (precious metals), and back into: bonds, equities and currencies, such as the U.S. dollar.
In Europe the economic calendar offered up very little in terms of fundamental data on Thursday, other than a series of Eurozone sentiment indices, the most prominent of which, the consumer confidence reading, remained unchanged at -5 for March. Euro STOXX closed up 0.18%, UK’s FTSE down 0.06%, DAX up 0.44% and the CAC up 0.41%.
Sterling enjoyed a post ‘article 50′ invocation rally versus its major peers during Thursday’s trading sessions, added to belief that returning inflation may create the conditions for the BoE to raise the base interest rate from 0.25%, has caused cable to rise by circa 3% over the past fortnight; GBP/USD rose by up circa 0.4% on Thursday at 1.246, and EUR/GBP fell by circa 1% on Thursday to 0.8565. Sterling rose versus: AUD, NZD, CHF, rising the most versus yen, GBP/JPY threatening to break through R3, to finish the day close to 139.54. The U.S. dollar recovered some of its recent losses versus yen; USD/JPY closing in on R3, rising by over 1% to close the day at approx. 111.88. EUR/USD slipped circa 0.5% on the day to approx. 1.0680, with the euro falling versus most of its peers throughout the day, as investors translated ECB officials’ comments as indicative that no interest rate rises, or adjustment to the asset purchase programme, would be imminent.
Economic calendar events for March 31st, all times quoted are London (GMT) time.
06:00, currency impacted EUR. German Retail Sales (YoY) (FEB). The forecast is for a 0.4% rise, a fall from the 2.3% registered previously in January.
07:55, currency impacted EUR. German Unemployment Rate s.a. (MAR). The expectation is for the German unemployment reading to remain unchanged at 5.9%.
08:30, currency impacted GBP. Gross Domestic Product (YoY) (4Q F). The UK’s GDP figure is expected to reveal growth at 2.0%. A figure published above this forecast could have a positive impact on sterling.
09:00, currency impacted EUR. Euro-Zone Consumer Price Index Estimate (YoY) (MAR). CPI is predicted to fall to 1.8%, from 2.0% previously.
12:30, currency impacted CAD. Gross Domestic Product (YoY) (JAN). Canada’s GDP is anticipated to have slipped down to 1.8%, from a reading of 2.0% for December.
12:30, currency impacted USD. Personal Consumption Expenditure Core (YoY) (FEB). The prediction is for no change, on the 1.7% reading recorded in January.