US Open Preview – Dollar holds strong ahead of Powell’s Senate speech; European equities in the red

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  • US Open Preview – Dollar holds strong ahead of Powell's Senate speech; European equities in the red

    Here are the latest developments in global markets:

    • FOREX: Investors were in a sell mode against the pound during early European afternoon as the cloud around the Brexit story was getting larger following May’s unexpected rejection of the legal draft Brexit treaty published yesterday. Pound/dollar crawled further down to touch a fresh six-week low at 1.3726 (-0.16%). Euro/dollar also weakened towards six-week lows, inching down to 1.2185 (-0.07%) as hawkish monetary prospects in the US increased the gap between the US-EU short-term government bond yields to the widest in 20 years. Meanwhile, the Eurozone’s unemployment rate stood at 8.6% as expected in January (December’s unemployment rate was revised slightly downwards to 8.6%) while the bloc’s final IHS Markit manufacturing PMI for the month of February retreated by less than expected and remained above the threshold that separates growth from contraction. Euro/pound was flat at 0.8862 (+0.02%) after yesterday’s steep rally. The dollar index was in the green for the third consecutive day, trading at 90.72 (+0.12%) near six-week highs, with investors sentiment on the currency remaining positive ahead of the Fed Chair’s speech before the US Senate. Dollar/yen was moving sideways at 106.67 (+0.01%) while dollar/loonie was higher at 1.2848 (+0.12%). In antipodean currencies, aussie/dollar was struggling to pare earlier losses following a disappointing CAPEX print in the final quarter of 2017.
    • STOCKS: European stocks opened sharply lower on Thursday as prospects that the Fed could raise interest rates faster than expected continued to loom in the background, while disappointing earnings releases added further losses to the European equities. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 1.0% and 0.86% accordingly at 1100 GMT. The German DAX 30 dived by 1.47% with all sectors being in the red and consumer cyclicals losing the most. The French CAC 40 fell by 1.12% after the French supermarket Carrefour cut group’s dividends and painted a cautious outlook for its 2018 profits. The Italian FTSE MIB dropped by 0.89% ahead of Sunday’s general elections, the Spanish IBEX 35 and the UK’s FTSE 100 fell by 1.14% and 0.56% respectively. US stock futures were pointing to a negative open.
    • COMMODITIES: Oil prices extended losses towards fresh weekly lows as concerns over a rising US production heightened after the EIA oil report showed that US crude oil inventories increased well above expectations in the week ending February 23. In other news, sources stated that Saudi Arabia is likely to cut crude prices for its Asian partners in April after demand for April’s cargoes from Asia declined last month. WTI crude and Brent were trading lower at $61.29 (-0.58%) and $64.32 (-0.63%) per barrel respectively. In precious metals, gold stretched to fresh three-week lows, last seen at $1310.30 per ounce.

    US Open Preview – Dollar holds strong ahead of Powell's Senate speech; European equities in the red

    Day ahead: Theresa May meets the European Council President Donald Tusk; Powell testifies in front of the Senate

    The British Prime Minister, Theresa May, is meeting the President of the European Council Donald Tusk today at 1230 GMT according to the Council, a day before she delivers a keynote speech regarding the UK’s relations with the bloc. Yesterday, May surprisingly rejected a legal draft of the Brexit treaty handed out by the European Commission, opposing the EU’s border proposals on the Irish problem which stated that Northern Ireland would stay a member of the EU customs union if the sides fail to reach an alternative agreement. May is now under severe pressure as she has theoretically dismissed solutions discussed in Brussels and any retaliation from her side could tear down progress in the Brexit story, sending the pound even lower.

    In the US, the focus will turn to Jerome Powell once again. Following his hawkish speech before the House Financial Committee on Tuesday, the new Fed Chair is now preparing to testify in front of the Senate Banking Committee today at 1500 GMT. Powell will probably reiterate his optimism on the country’s economic conditions, supporting that gradual rate hikes are needed in the future to avoid the economy from overheating. While this is not something new to the markets, any change in his tone perceived as more hawkish or bearish could shake the dollar.

    Meanwhile, the US President, Donald Trump, is expected to announce tariffs on steel and aluminum imports later today, risking the country’s trade relations and increasing tensions with China,  the world’s biggest aluminum and steel producer. Canada and Mexico are also exporting metals to the US and any restriction to their activities could deteriorate efforts to negotiate the NAFTA treaty which has been so far hanging in the air.

    In terms of data, economic releases will keep investors busy today, with the US releasing a bunch of figures. At 1330 GMT, the Fed’s preferred inflation measure, the core personal consumption expenditures index (PCE) will come into view. For the month of January, the index is expected to stand flat at 1.5% y/y and inch up by 0.1 percentage points to 0.3% m/m. Readings on personal consumption and personal spending will also attract attention at the same time, with both indicators seen lower in the aforementioned month.

    Initial jobless claims (1330 GMT), ISM manufacturing PMI (1500 GMT) and the Fed’s Beige Book which reports on current economic conditions in 12 Federal districts will also be in focus later in the day.

    In Canada, current account data for the final quarter of 2017 are due out at 1330 GMT, while the Markit manufacturing PMI for February will be released at 1430 GMT.

    As for the speakers, besides Fed Chair Jerome Powell, New York Fed President William Dudley (permanent voter) will also step up to the rostrum, at 1600 GMT. He is considered one of the most influential Fed officials and thus investors will look for any signals as to whether he would entertain the prospect of four rate hikes this year.

    US Open Preview – Dollar holds strong ahead of Powell's Senate speech; European equities in the red

    Source: Trade Forex with XM.

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