SMATS Weekly Market Report (12th April)
USA
The US dollar pulled back slightly on concerns of rising inflation and higher cost of borrowing, highlighted by another round of rising Treasury yields. The Dollar Index (DXY) was down 0.92%, closing the week at 92.16, after opening at the 93.0 mark.
Nevertheless, the US produced another strong round of data, highlighting the countries progress towards a full economic recovery. ISM Services PMI (March) jumped to 63.7 from 55.3 (MoM), marking the highest ever-recorded growth in services. The countries Balance Of Trade (February) indicates that their trade deficit widened to $71.1 bn from $67.8bn MoM, as imports fell less than exports.
While the economic recovery has been supported by enormous monetary stimulus, there still remain the implications of looming tax rate hikes. Unemployment still a major focus and concern. Weekly jobless claims up to 744 000, from 728 000 MoM, after analyst forecasts came in around 680 000.
This week, Retail Sales are expected to grow by 4%-5% in March, after February’s 3% decline. US Inflation Rate (March) is expected to rise towards 2%, after inflation rose from 1.4% to 1.7% in February. Federal Reserve Chair Jerome Powell believes that inflation will rise above 2% in the short term, exceeding their target. Nevertheless, the Fed has indicate that they are more worried about average inflation.
HKD, SGD and AED
Over in Hong Kong, a lack of local data has seen the currency move mostly on global factors. Benefitting from the pull back in the pound, GBP/HKD dipped by 0.87%, closing at 10.66. Similar price action can be seen in the GBP/AED pair, which fell by 0.90%. GBP/SGD also reclined, by 1.22%.
This week, Singapore GDP Growth is due for Q1 of 2021, after the previous quarterly growth of 3.8%. Balance of Trade data for March will also be released after February’s Trade Surplus was reported at $6.21bn. Non-Oil Exports will be out on Friday, after February’s Month-on-month rise of 8.2%.
The United Arab Emirates will be releasing their Inflation rate for February, after January’s inflation rate of -1.86%. The value of the regions loans will also be reported, after the value of of loans increased by 2.4% in January.
GBP
Sterling experienced a notable sell-off in the markets, ending the currency’s multi-week rally. The pound depreciated against most G10 currencies, as risk-on market mood turned investors away from the developed currency. The GBP/USD pair declined by 0.87% during the week, closing around 1.3710 after opening at 1.3825 on Monday.
Despite the short term correction in the pound, the U.K’s fundamentals remain strong. Services PMI (March) rose up to 56.3, up from 49.5 in February, highlighting the region’s economic progress. Construction PMI for March came in at 61.7, jumping up from 53.3 in the previous month.
Furthermore, Boris Johnson indicated that his covid recovery roadmap is on track, with non-essential retail, gyms and pubs reopening on April the 12th. With the uptick in economic activity, analyst forecasts indicated that the U.K will reach-pre-covid economic activity by the beginning of Q4 this year. However, despite good growth forecasts, concerns of withdrawal of stimulus and tax rate hikes are starting weigh on market participants. The threat of sustained unemployment could see another UK rate cute, especially if jobless numbers rise.
This week, the Balance of Trade for February will released and is the trade deficit is expected to widen to more than £2bn, after January’s -£1.6bn. Nevertheless, the upcoming week will be a slow week for data, with not much on the cards. The main focus will be on the vaccine rollout and easing of lockdown restrictions.
EUR
While the US and UK are looking to re-open their doors, the eurozone is battling to contain COVID-19. Rising numbers of infections and lockdown restrictions remain a major concern for the region.
Nevertheless, the Euro saw an improvement in the markets this last week, supported by the ECB’s continued bond buying program. GBP/EUR saw some improvement, driven by fresh optimism over the Euro Area’s vaccination campaign and the sterling sell-off. GBP/EUR fell by 2.05%, ending a 5-week appreciation streak for the pair. GBP/EUR closed the week around 1.1515, after opening at 1.1757 on Monday.
This week, Retail Sales data is expected to come in lower than last month, which could weight negatively on the Euro. CPI data will also be released this week, on Friday. Manageable inflation figures are likely.
ZAR
The Rand strengthened drastically against most of the majors, riding on the back of an emerging market bounce back. Leading the way for EM currencies, the ZAR continued to rally throughout the week against developed market currencies. The GBP/ZAR pair depreciated by 1.25% during the weeks trade. The pair fell from an open of R20.22 and touched lows of R19.90, before settling and closing the week around the R20.00 resistance level. While USD/ZAR pair help up slightly better, the pair also moved downwards by 0.53%, closing around R14.60.
This Wednesday, we have SA Retail Sales due, which expected to come in lower than previous months. Not much else is expected in the data front, which is likely to lead to a quite week for the rand. More likely, the ZAR will be influenced by global factors and risk-on sentiment.
AUD
The Aussie dollar ended the week on the front foot against developed market currencies, benefitting from emerging market strength and pound weakness. In the markets, the Aussie dollar firmed by 0.21% and 1.11% against the US dollar and pound, respectively.
Last week, the Reserve Bank of Australia did not surprise anyone with their decision to leave interest rates unchanged at 0.1%, while Services PMI (MAR) up to 55.5 (from 53.4).
This week, NAB Business Confidence (MAR) expected to rise further, to 18, after February came in at 16. This will mark the highest Business Confidence since 2010. Westpac Consumer Confidence Index also expected to rise, highlighting the improved sentiment for the region. Australia’s Unemployment Rate for March will be released on Thursday, after February’s 5.8% figure. Any rise in unemployment could weigh negatively on the Aussie Dollar, while an improvement will contribute to the country’s current optimism.
NZD
Last week, the Kiwi Dollar was favorably influenced by the wave of emerging market strength and sterling weakness. In the absence of any notable local data release, NZD pairs moved mostly on counter-currency ebbs and flows.
While the USD/NZD pair ended the week flat, GBP/NZD fell by 0.88%. GBP/NZD closed the week around 1.9480, after opening at 1.9660 on Monday.
This week will be another light week of local data. NZ Business PMI forecasted to rise above 54, after Feb came in at 53.4.
