07/03/2016
Good morning
- US nonfarms surprised to the upside on Friday
- But USD ended the day lower as lower average hourly earnings declined
- US trade deficit widened to to US$45.7bio from US$44.7bio
- Feds Kaplan says pleased to see good nonfarm numbers
- But adds he wants to see evidence Fed will meet inflation targets
- Period of central bank meeting begins
- This week sees ECB, BoC and RBNZ
- ECB widely expected to cut rates further by 0.1.-0.2%
- Further rate cuts could be tiered
- Also some talk of an increase in QE by EUR10bio/month
- Euro holding up well though despite possible ECB policy changes
- EU leaders meet for emergency meeting on refugee crisis
- Nikkei down 0.61% to 16,911
- Shanghai Comp up 0.5% to 2,888
- USDCNY fixes 6.5102 from 6.5218
- China says will not face hard landing
- CFTC data shows spec accounts increased net short euro positions
- Also shows an increase in net long yen positions
- CITI trade of the week to sell EURNOK 9.3380, stop 9.43, target 9.15
- Idea based on possible ECB action, while oil not harming NOK as much
- 15.00 Feds labour market conditions
- 18.00 Feds Fischer, Brainard speak
- 20.00 US consumer credit
- 23.50 Japan GDP
- 00.01 UK BRC sales
- China trade balance due overnight, timing uncertain
USD - The US employment numbers Friday surprised to the upside, with the
previous months reading also revised higher. USD did manage to make some
gains initially, but actually ended up across the board. This is the third
month in a row where the USD has ended up the complete opposite of what I
would reasonably expect. In January we had a solid reading, but USD ended
lower, February saw a weak headline but USD ended higher, while March saw
another good reading and a weaker USD. I don't really understand this, OK
so the average hourly earnings were a little lower and the trade balance was
a little wider, but my simple understanding that better US numbers leads to
a stronger USD seems to fail. OK, so this does not perhaps alter the March
Fed outcome, where no change is expected, but I cannot grasp this idea that
good data sees USD sold off. Suggestions much appreciated....
EUR - ECB rate announcement will be seen this week. But what will it bring?
Many are looking for a rate cut of sorts to take rates into further negative
territory. Forecasts range between 0.1-0.2%, perhaps with some sort of
tiered rate plan, while there are also many looking for an increase in QE by
EUR10bio/month. There is always the chance for some easing from new
'unconventional' measures. Main question is whether the market is expecting
too much. Remember Draghi disappointed in December and there is always the
chance he can do so again. I wonder if this is why Euro is not lower. Mind
you, these levels are probably good for ECB, allowing them to introduce
further easing while Euro is at reasonably elevated levels. A 2-3 big
figure decline would only take EURUSD to around 1.0700. ECB aside, EU
leaders meet to discuss the refugee crisis. There is talk of creating a
central hub for Europe for all refugees, who are then distributed to EU
members under agreed criteria. Not sure how well that will go down.
JPY - USDJPY tried a couple of times on Friday to get above the 114.30
level, once after the nonfarm payroll release and once later in the day
after the London close. Both times the pair ran into offers and failed to
break, just as it had done a couple of days earlier. Worth watching that
area closely. EURJPY had traded up to 125.50 on that late Friday rally but
this morning has fallen sharply to 124.25 so far, interestingly the low
after the US nonfarm release. Supported for now but further losses look
possible, particularly if equities continue their morning weakness.
NZD - RBNZ rate announcement this week, more chance of them leaving rates on
hold but there are some looking for a rate cut of 25bps. The feeling at the
moment is we will see rate cuts from RBNZ in 2016, it is just a matter of
when. With other central banks on the easing trail, now would seem as good
a time as ever. If they are ahead of the curve, it can always be undone, I
see little reason to delay rate rises if they really are needed. A bit more
dovish talk ahead of the wednesday evening announcement would certainly go
some way to help my 0.6200 0.6900 double no touch, no sooner had I looked at
it did we see a near 250 pips rally to get above 0.6800, a little too close
for comfort.
GBP - Don't want to dwell too long on GBP, but did want to say that we
should perhaps watch for GBP weakness if the EU refugee discussions do go
the way of a central hub for onward distribution of refugees. The fear
among UK citizens is likely to be that our 'allowance' would be at the
larger end and to have the rest of Europe deciding how many we will take
would seem like a lack of control ove4r our own borders that many
referendum, voters will be against. Any refugee deal that could UK towards
leaving the EU is likely to be GBP negative.
