Fundamental Analysis 13.03.2018 – Market Outlook

13 / 03 / 2018 | Market News

Market Recap

CAD was the loser on the day. Lower oil and metal prices plus some lingering questions about Friday’s 9th of March 2018, Canadian employment figures are apparently pressuring the currency. Not only did employment rise less than expected (15k vs 20k expected), but the mix of new jobs was not on a good level – full-time employment fell by 39k and part-time employment rose by 55k. Today’s performance probably depends more on what USD does after the Consumer Price Index (CPI) figures (see below). 

GBP on the other hand gained after junior Brexit Minister Robin Walker said Britain and the EU are “very close” to agreeing on a deal for the transition period on Brexit. The crunch point will be the UK/EU summit on 22-24 March 2018.

Today’s market

A more active day is likely today Tuesday 13th of March 2018!

Things are relatively quiet during the European morning. The US National Federation of Independent Businesses (NFIB) releases its small business optimism survey at 10:00 GMT, which is 6 AM back in its headquarters in Nashville, Tenn. The index is expected to fall a bit, but given that the previous month was the highest level since 2004, that’s still pretty good, especially considering that hiring intentions fell in the month. This should be positive for the USD. 

We then get the two main events of the day simultaneously.

In Britain, UK Chancellor of the Exchequer Philip Hammond announces the Spring Statement. The statement no longer includes the Budget and so there won’t be any changes in tax or spending. Press report suggest the whole event may take no more than 15 minutes, vs an hour or more for the usual Budget speech. The statement will be of interest mainly because the Office for Budget Responsibility (OBR) is likely to revise down its forecast of borrowing forecasts. That may be negative for GBP, because less borrowing means lower UK interest rates and lower foreign inflows into the gilts market. It will also include for the first time an estimate of the annual Brexit “divorce payments” to the EU that UK Prime Minister Theresa May agreed to in principle in December 2017. That could also be negative for GBP because it makes explicit just how big the outflow from Britain is likely to be. 

The main event of the week will be taking place in the US: the announcement of the US consumer price index (CPI).

The CPI isn’t the inflation gauge that the Federal Reserve System (Fed) actually targets –that’s the personal consumption expenditure (PCE) deflator, or more accurately, the core PEC deflator – but the market pays attention to it almost as if it were -- the correlation between the headline CPI and the movement of EUR/USD 30 minutes after is about 0.32, compared with 0.42 for core PCE deflator. The market pays more attention to the headline CPI figure than to the core figure, whereas with the PCE deflator the attention is on the core figure.

If Tuesday’s 13th of March 2018 US CPI does show headline inflation accelerating further above the Fed’s 2% target about a week before the next Federal Open Market Committee FOMC meeting, that should solidify expectations of higher interest rates and cause USD to appreciate. 

Bank of Canada Governor Stephen Poloz will speak on “Today’s Labour Market and the Future of Work.” He could make some comments about issues such as the current level of slack in the labor market or the relationship between unemployment and prices, which could hit the FX market. 

Following yesterday’s 3-year and 10-year auctions, today the US Treasury reopens a 30-year bond. Yesterday’s auctions went well despite $145bn total in paper being sold (including the 3m and 6m bills), and US Treasury yields ended the day lower, led by the 30-year bond.

The Fundamental Analysis are provided by Marshall Gittler, an external service provider of an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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