Here are the latest developments in global markets:
- FOREX: The dollar index found the opportunity to crawl up to 89.81 (+0.19%) and dollar/yen climbed to 106.13 (+0.08%) in early European afternoon as investors were waiting for more details on Trump’s import tariffs and were particularly eager to hear if any countries would get exemptions. Euro/dollar traded lower at 1.2370 (-0.34%) ahead of the ECB rate announcement where any clues on the ECB’s plans to change its forward guidance on monetary policy could bring fresh volatility to the currency. A strict language on the trade front could wake euro bears up. Pound/dollar was on a downtrend amid Brexit uncertainties, reaching 1.3856 (-0.32%). The UK trade minister, Liam Fox, said on Thursday that punishing the UK for leaving EU “is language of a gang” and not in the interest of EU members, signaling that a transition deal will not be on the table by the end of this month as Finance Minister, Philip Hammond, claimed on Wednesday. Meanwhile in the monetary front, a Reuters poll showed that 36 out of 63 economists were confident that the Bank of England would raise rates in May and stay pat until the mid of 2019. In antipodean currencies, aussie/dollar and kiwi/dollar retreated to 0.7800 (-0.29%) and 0.7263 (-0.29%) respectively on the back of potential trade risks as Australia and New Zealand are highly exposed to commodity prices which would get into a bearish run if the US tariff measures materialize. Dollar/loonie changed hands at 1.2928 (+0.14%).
- STOCKS: European stocks edged up as investors were somewhat relieved after news that Trump could exclude some US allies from his tariff list. However, the gains were not significant and European automakers continued to see their shares falling. The pan-European STOXX 600 and the blue-chip Euro STOXX were up by 0.12% and 0.10% respectively at 1100 GMT led by gains in telecommunication and technology sectors. The German DAX 30, though, tumbled by 0.52% with all sectors being in the red except technology and industrials. The French CAC 40 rose by 0.22% lifted by utilities, the Italian FTSE MIB 100 climbed by 0.17% and the UK’s FTSE 100 was flat. US stock futures were mixed.
- COMMODITIES: Oil prices were heading lower as fears of a potential trade war and concerns over a rising US production continued to weigh on the markets. WTI crude and Brent slipped to $61.09 (-0.10%) and $64.17 (-0.26%) per barrel respectively. In precious metals, gold was moving sideways around $1325 (-0.03%) per ounce.
Day ahead: ECB rate decision takes the stage; Trump set to sign import tariffs
The focus will turn to the European Central Bank (ECB) which concludes its two-day meeting today, with the rate announcement made at 1245 GMT and a press conference by the chief of the central bank Mario Draghi scheduled for 1330 GMT. Following their Canadian and Australian counterparts, ECB policymakers are anticipated to stand pat on interest rates and according to market chatter leave forward guidance on monetary policy unchanged. After a political deadlock in Italy and Trump’s recent tariff proposals on aluminum and steel imports, the ECB will probably hold a cautious tone. Besides, eurozone’s inflation has not shown any significant rise since January’s meeting but instead, it inched lower from 1.3% to 1.2% y/y according to initial CPI estimates for the month of February. The bloc’s economic growth did not gain positive momentum in the fourth quarter of 2017 either as final readings indicated yesterday. Investors will also keep a close eye on the ECB’s growth projections and will be eager to hear any comments on the exchange rate.
In the US, the president is said to formally establish the import tariffs he proposed last week later in the day following the resignation of his chief economic advisor, Gary Cohn on Tuesday, but some officials claimed that this could be postponed to Friday due to legal procedures. According to people with knowledge, the import tariffs which could go into effect in 15 to 30 days after the signing ceremony, are likely to not affect close allies such as Canada and Mexico directly, with Peter Navaro, a top White House trade adviser, saying on Wednesday that “a permanent exclusion will hinge on those countries agreeing to a great trade deal in the ongoing renegotiation of the North American Free Trade Agreement”. Earlier, Trump said that Canada and Mexico could get a 30-day exemption from the planned tariffs and this timeframe could be extended based on progress in NAFTA talks.
In terms of data out of the US, economic releases will be relatively light, with the Department of Labor publishing readings on initial jobless claims at 1330 GMT ahead of the famous nonfarm payrolls due on Friday.
In Canada, the economic calendar will feature figures on February’s housing starts (1315 GMT) and January’s building permits (1330 GMT) with both indicators expected to come in weaker. A speech by the Bank of Canada’s Deputy Governor, Timothy Lane, will also attract attention at 2035 GMT for any comments on the trade front and the central bank’s decision to keep interest rates steady yesterday.
Elsewhere, Japan will report on household spending for the month of January at 2330 GMT. Analysts predict consumer spending to decline sharply by 1.2% on a yearly basis, recording its biggest decline since April. This compares to a fall of 0.1% seen in the previous month.
Meanwhile, the Bank of Japan starts its two-day policy meeting today with the rate announcement scheduled for Friday at 0400 GMT. Predictions are for the BoJ to maintain its loose monetary policy as inflation continues to undershoot its target of 2.0%. It would be interesting though to see whether policymakers are preparing the ground to exit stimulus, something that has been recently echoed.