WEEK 16 Review – Traders Weekly Wrap:
Mon 17th to Fri 21st April 2017
Welcome to our ALL NEW BEFORE & AFTER FORMAT. In this exclusive in-house analysis we review what happened last week by currency, data point and outcome. This enables you to tally the expectations issued in last Sundays Week Ahead Traders Calendar we emailed you last Sunday with the actual data released. From this you can clearly see what data beat or missed expectations, and correlate that outcome with the price action you see on your charts. Simple yet brilliant !
Just when you think politics couldn’t get any more bizarre or exciting – it does! Clearly the big news last week, which I don’t think anybody saw coming, was Theresa May deciding to call a snap election in the UK. While a surprise the logic behind it is sound, not just because there is no credible opposition at present, but more from the point of view that due to the small majority they have in the House of Commons they fear that every element of the Brexit negotiations is going to get drawn into minuscule detailed inspection. The best position for the UK to have either a full or transitional deal by the end of the two-year negotiation process, and frankly the only likelihood of achieving this, is if the government has a greater mandate to make the tough decisions needed.
Most analysts were split in terms of what this means for the pound. The reason for the bullish rally was generally seen as a reaction to the fact that the Conservatives will have a bigger mandate which will make a deal easier, especially as the government will not have to keep bickering and playing party politics. However, overall the pound is still bearish as we progress through the negotiations, and beginning to see more questionable data releases.
Thursday 20th April
Philly Fed Manufacturing Index – Prior: 32.8 | Expected 25.6 | Actual 22.0
USD Summary: Over the last couple of weeks we have seen quite a lot of volatility in the USD whereas this week there was very little data released and across-the-board USD finished broadly where it started the week. We continue to see the US Dollar Index around key levels of support. However, don’t let this lull you into a false sense of security, there are still significant issues in the US, not just economically but politically with North Korea and Russia still very much in the foreground and an unpredictable president in the White House. The only highlight last week was a speech from Treasury Secretary Mnuchin who on Thursday announced that the government were “pretty close” to bringing forward major tax reforms, which was the main impetus behind the Trump trade following his election win.
Also worth bearing in mind is that the Federal Reserve summary of commentary on current economic conditions, or simply referred to as the Beige Book, also cited continuing expansion in manufacturing and construction, albeit with mixed consumer spending. The labour market was considered tight with high turnover and growing labour shortages, all of which are positive for the economy. The data overall is likely to reinforce the Fed programme of gradual tightening of monetary policy throughout 2017.
Friday 21st April
Flash Manufacturing PMI – Prior: 56.2 | Expected 56.1 | Actual 56.8
Flash Services PMI – Prior: 56.0 | Expected 56.0 | Actual 56.2
EUR Summary: Again a fairly quiet week for the Euro although early in the week it did benefit from the snap election decision from the UK, really on the feeling that this might lead to a softer Brexit negotiation. It remains to be seen whether this will be the case. Elsewhere inflation was confirmed at 1.5% and flash manufacturing and services PMI’s were not significantly remarkable albeit slightly ahead of forecast, although manufacturing was at its highest level in 6 years. We did see some weakness in the equivalent German ratings and strength in the French, however the biggest concern for the single currency will be the French elections this week. With another terrorist attack in Paris this could significantly help Marie Le Pen and her right-wing agenda which would lead to a significant risk to the EU. There is a good chance she will make it into the 2nd round due to take place on Sunday 7th May. We could see some significant volatility on market opening on Sunday.
Tuesday 18th April
Theresa May calls election
Friday 21st April
Retail Sales m/m – Prior: 1.4% | Expected -0.3% | Actual -1.8%
GBP Summary: clearly the GBP rallied significantly on the back of Tuesdays announcements for the reasons discussed above. In other news we also saw retail sales miss significantly. This doesn’t look as bad as it seems as February was revised up from 1.4% to 1.7% but annual growth is beginning to slow. The detail shows that the declines were in food and non-food sectors and with limited wage growth and average store prices increasing by 3.3% a decline isn’t surprising. The bank of England did state that it was expecting retail sales to fall, however MPC member Saunders was quite hawkish in a speech on Friday night saying that despite retail sales slowing, corporate and business investment was expected to grow which would counter any economic consequences, and he expects growth to remain about 2% with inflation topping out at 3% later this year or the year after.
Friday 21st April
CPI m/m – Prior: 0.2% | Expected 0.4% | Actual 0.2%
CAD Summary: Very limited news out of Canada last week. While the Bank of Canada had predicted a fall in inflation over the next few months this represents the highest year-on-year figure of 1.6%, just below the short term target of 1.7%. Although there still remains some good news coming out of Canada, with this data being slightly more dovish we can expect no further tightening on monetary policy for the time being.
Tuesday 18th April
GDT Price Index – Prior: 1.6% | Actual 3.1%
Wednesday 19th April
CPI q/q – Prior: 0.4% | Expected 0.8% – Actual 1.0%
NZD Summary: A good week for the New Zealand dollar with Global Dairy Trade prices increasing by 3.6% followed by inflation increasing to 1% for Q4 and 2.2% year-on-year. This is well into the target of 1% to 3%, primarily driven by food prices, alcohol and tobacco. It is anticipated that we could start to see calls for higher interest rates towards the end of this year.
In other news:
We saw China GDP deliver as expected but with positive signs around industrial production, which provides a level of comfort for the general world economy. Also in Asia we saw Japan’s Nikkei Flash PMI also perform well printing at 52.8, a two-month high. This suggests that export demand is encouraging manufacturing in the world’s third-largest economy at long last.