Investors are Wary of European Tapering in Stimulus
- 12 March 2018
Fundamental Outlook The U.S. payroll grows above forecast and signals possible rate hike coming soon. China regains growth in consumer inflation. European Central Bank stays unchanged in monetary policy but investors are worried of weak economy due to tapering stimulus coming near year-end.
The U.S. ISM services index grew 59.5 in February and maintained good growth. Trade deficits widened to USD56.6 billion in January and worse than previous month, also highest in last 10 years’ record.
American jobless claims for the week ended 3 March increased to 231,000 and higher than previous week. On Friday, non-farm payroll grew 313,000 in February and much higher than median forecast, spiking new consensus of impending rate hike. However, hourly wages rose 0.1 percent and below target expectation.
China Caixin’s services index rose to 54.2 in February and matched forecast. Another report on trade surplus expanded CNY225 billion (est USD33.7 billion) in February and much higher than CNY136 billion in January.
China’s consumer prices rose 2.9 percent in February and highest since 2013. Producer prices grew 3.7 percent and matched forecast.
Japan’s leading indicators, comprising 11 economic indicators, grew 104.8 percent in January and slowest pace in last 8 months. Bank of Japan holds policy unchanged with short-term interest rate at minus 0.1 percent, while guiding 10Y-JGB yield a zero percent.
European Central Bank holds interest rate unchanged at zero and continues its asset purchase at EUR30 billion monthly till September. Market investors are wary since President Draghi has not emphasized of continual easing like before.
Markit reports U.K. services index expanded at 54.5 in February, best record in 4 months and above forecast. Another report on manufacturing production rose 0.1 percent in February and lowest in 3 months’ record. Trade deficits performed worst in January at GBP12.3 billion after it was reported at minus GBP11.8 billion in December.
Technical Forecast USD/JPY made a slight rebound last week after hitting 105.35 bottom. This week, we foresee the trend will be consolidating sideways from 106.00 – 107.50 range without clear headway. Risk control is advised in case the trend moves beyond the aforementioned range.
EUR/USD has been resisted at 1.2450 area last week. Technically, we reckon the trend is still unclear as the fundamental forces behind both currencies are still unclear. This week, the trend will probably be contained from 1.2200 – 1.2450 range while trading in mixed sentiment.
GBP/USD has shown a gradual bearish pattern on day-chart. The market is likely to fall soon if the trend cannot challenge above 1.3930 this week. Downside support is identified at 1.3700 level and driving beneath here will initiate a new south trend. Observe the BREXIT threats and social politics in U.K. are slowly waning the investors’ confidence.
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DAR Wong is a registered fund manager in Singapore with 29 years of global trading experiences. You may reach him at firstname.lastname@example.org