Weekly market Analysis
This Week's Risk Events
The review of the week 08/05 – 14/05/2017 08/05/2017
So, with an absolute majority of votes (66.06%) on the results of the second round of elections, Emmanuel Macron became the president of France. The head of the party “National Front” Marin Le Pen scored 33.94%. At the opening of the trading day on Monday, the pair EUR / USD reached a new annual maximum near the level of 1.1020, and the European stock index EuroStoxx50 – the maximum of the year at 3679.0. Nevertheless, on Monday, the euro and European stock indexes were down. Now that the uncertainty with the elections in France is behind us, investors will focus on the macroeconomic indicators of the Eurozone and the position of the ECB regarding monetary policy in the Eurozone.
Do not also discount the strong performance of the US labor market for April, released on Friday. The unemployment rate fell to 4.4% from 4.5% in March, which is the lowest since May 2007 and the lowest for the entire current period of the growth of the US economy. The number of jobs outside of US agriculture (Non-Farm PayRolls / NFP) in April increased by 211,000 compared to the previous month. The average hourly earnings increased by 0.3% (against the previous value of 0.1%). A low unemployment rate may allow the Federal Reserve to continue raising short-term interest rates. According to the CME Group, the probability of a June interest rate hike is now 78.5%.
The focus of the new week will be the decisions of the RBNZ and the Bank of England on interest rates in New Zealand and the UK, as well as preliminary data on Germany’s GDP for the first quarter.
As always, the publication of a number of important macroeconomic data and several important news is expected on the new trading week
Tuesday 09 May
01:30 (GMT) AUD Retail Sales m / m
The volume of retail sales in Australia in March. The indicator is published by the Australian Bureau of Statistics, shows the total volume of retail sales and is considered an indicator of the growth rate of the Australian economy. The forecast is expected to grow by 0.3% (against a decline of -0.1% in February). When the forecast is confirmed, the Australian currency will strengthen on the foreign exchange market.
09:30 AUD Annual Budget Release
The Australian Government publishes an annual budget plan. Volatility in trading on AUD usually rises during the publication period.
Wednesday 10 May
12:00 EUR ECB President Draghi Speaks
The surge in volatility in the financial markets is usually observed in the period of his speeches immediately after ECB meetings on monetary policy. Other performances, as a rule, cause less volatility. However, in any case, it is necessary to show increased attention when trading in the foreign exchange market, especially the euro and European indices, during the speech of M.Draghi, who is famous for his ability to develop financial markets with his own comments. Volatility, as a rule, increases if Mario Draghi, in his speeches, deals with the topic of the ECB’s monetary policy.
14:30 USD Crude Oil Inventories
Energy Information Administration the US Department of Energy publishes a weekly report on oil and petroleum products in US stores. Decrease in reserves, as a rule, has a favorable effect on oil prices. The publication of data, usually, is accompanied by a surge in volatility in oil prices and oil futures. The Canadian dollar, being a commodity currency and having a correlation with oil prices of approximately 92%, is also sensitive to the publication of this data. The previous value of the indicator is -0.9 million barrels of oil and oil products.
21:00 NZD Official Cash Rate
The RBNZ decision on the interest rate in New Zealand. Forecast – the rate will remain at the same level of 1.75%. The volatility in the New Zealand currency trade is expected to grow.
The interest rate in New Zealand remains one of the highest among the advanced economies. A relatively high interest rate attracts foreign capital, which seeks the best option for “risk-free” income. It supports NZD. The decision of the Reserve Bank of New Zealand on the discount rate will increase volatility in trades on the New Zealand dollar and provide a lot of opportunities for both short-term and medium-term speculation.
In March, the RBNZ announced that it would not change rates until the end of 2019. However, some investors believe that higher inflation, the weakening of the New Zealand dollar, the good condition of New Zealand’s foreign trade balance, the stable growth of the country’s economy and other factors may force the RBNZ to revise the forecasts on the terms of the rate hike at the May meeting. If the RBNZ signals the possibility of raising the interest rate earlier than at the end of 2019, the New Zealand currency may gain support and grow in the foreign exchange market.
22:00 NZD RBNZ Monetary Policy Statement
If RBNZ in the subsequent comments expresses in favor of maintaining a low interest rate, then this will become a negative factor for NZD. Stronger statements regarding the monetary policy of the RBNZ will help strengthen the NZD.
Thursday 11 May
01:10 NZD RBNZ Gov Wheeler Speaks
After the Reserve Bank of New Zealand kept the key rate unchanged at 1.75% at the end of March, the RBNZ Governor Graham Wheeler said that “monetary policy will remain soft for a long time.” Volatility could rise sharply, and the New Zealand dollar strengthened, if Wheeler made a more stringent statement regarding the monetary policy of the bank.
08:30 GBP Manufacturing Production m / m
Block of the most important macro data for Great Britain for March: level of industrial production, foreign trade balance. There is high volatility in the pound trade and in the index of the London stock exchange FTSE100 expected. High results will strengthen the pound, low results – will weaken. Forecast: -0.2%, -11.7 billion pounds, respectively.
11:00 GBP Official Bank Rate / MPC Official Bank Rate Votes / BOE Inflation Report
It is likely that the rate will remain at the current level of 0.25%. Also at this time are published: a report on the monetary policy with the results of voting on the rate and other issues, as well as with comments on the state of the economy; the protocol of the Bank of England’s Monetary Policy Committee (MPC) with the distribution of votes for and against the increase / decrease in the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country’s economic growth, as well as a large deficit in the current account of the UK’s balance of payments. On the other hand, there is an improvement in economic performance in the UK. The intrigue about the further actions of the Bank of England remains. And in trading with the pound and the FTSE100 index, a lot of trading opportunities are provided during the publication of the bank’s decision and during its subsequent press conference.
12:30 USD PPI m / m / Unemployment Claims
Producer Price Index (PPI) estimates the average change in wholesale prices determined by manufacturers at all stages of manufacturing. A high result strengthens the US dollar, low – weakens. Forecast: in April the index rose to 0.2% (against -0.1% in March). /
The weekly report of the US Department of Labor, which contains data on the number of initial applications for unemployment benefits. The result above the expected indicates a weak labor market, which has a negative impact on the US dollar. According to the forecast, the growth is expected to reach 245,000 versus 238,000 for the previous period, which should negatively affect the dollar.
Friday 12 May
Day 1 ALL G7 Meetings
12:30 USD CPI m / m / Core CPI m / m / Core Retail Sales m / m / Retail Sales m / m
The block of the most important macroeconomic indicators for the US in April: the level of retail sales, the consumer price index.
Retail sales and the consumer price index are one of the main inflation indicators in the US, showing a change in the volume of sales and the level of prices in the retail trade. A strong result strengthens the US dollar, and vice versa, a low result weakens the USD. The forecast: + 0.6% (against -0.2% in March) and + 0.3% (against -0.3% in March), respectively.