Fundamental Analysis
By Orbex
It was another week of big Central Bank decisions and this time, it was the BoJ, Federal Reserve, SNB and the Bank of England. All Central banks left monetary policy unchanged while waiting to assess more data. Interesting, the BoJ’s monetary policy decision was a close call despite market expectations that there would no big changes. The BoJ’s tone was neutral but hinted that further stimulus action could be taken, given that the Central bank had cut rates in late January. The meeting minutes from the BoJ for the January meeting showed that QE expansion was still a possibility, which now shifts focus to the April meeting from the Bank of Japan. Following the neutral stance, the Yen continued to firm but the downside clearly looks to be limited for now.
The SNB and the BoE also left rates unchanged. While the SNB reiterated that the Swiss Franc was overvalued, it refrained from cutting rates further. However, the Swiss National Bank did send out a veiled reminder that forex interventions and rate cuts will be used if necessary to stem out further gains in the Swiss Franc. Meanwhile, the Bank of England stood pat on policy with a unanimous vote to leave rates unchanged at 0.50%. But the markets focused on the BoE’s statement which said that rates were likely to be hiked than cut, which saw the British Pound continue to gain strongly.
The Fed’s big event this week was dovish as it could be. While leaving the Fed funds rates unchanged at 0.25% – 0.50%, the Fed’s economic projections on interest rates saw the Central Bank tone down its hawkish projections from four rate cuts to only two, closer to what the markets are pricing in currently. It is now expected that the Fed will likely hike rates in June and December, with the December meeting seeing a higher probability. The Fed’s signals showed that there were concerns on the prolonged stagnation in inflation which remains below the 2.0% target rate. The Dollar fell, as a result,the Euro seeing the highs of $1.13 briefly.
In other news over the week, New Zealand’s quarterly GDP data surprised, rising 0.90%, above forecasts of 0.70%, while Australia’s unemployment rate dropped to 5.80% against forecasts of staying steady at 6.0%. Both the commodity risk currencies gained as a result.
UK’s unemployment data was also released this week which saw a turnaround in the average wage earnings, which increased to 2.10% from forecasts of 2.0% and up from 1.90% previously. This was also supportive of the GBP’s rally this week.
[Tweet “Crude Oil futures for April is up by 6.0% for the week with prices at 3-month high at $42 a barrel”]
Commodity markets, especially Oil is seeing another strong week of performance. Crude Oil futures for April delivery is currently up by over 6.0% for the week with prices trading near a 3-month high at $42 a barrel. Oil prices gained with a weaker US Dollar and increasing chatter about reducing Oil production. A few Oil producing nations are expected to meet over the weekend on March 20th to further push forward with the Oil production freeze agreement. Gold prices climbed back above the $1250 handle this week as the Fed’s dovish signal saw the precious metal gain. However, the gains were limited with prices showing signs of exhaustion near the previous highs of $1260 – $1275.
Economic events this week
- Japan core machinery orders m/m 15.0% vs. 2.0%
- Eurozone industrial production m/m 2.10% vs. 1.70%
- RBA releases monetary policy minutes
- BoJ leaves interest rates and QQE unchanged
- Japan revised industrial production m/m 3.70% vs. 3.70%
- Eurozone employment change q/q 0.30% vs. 0.20%
- US core retail sales m/m -0.10% vs. -0.20%; retail sales m/m -0.10% vs. -0.10%
- US PPI m/m -0.20% vs. -0.20%; Core PPI m/m 0.0% vs. 0.10%
- US empire state manufacturing index 0.6 vs. -10.3
- New Zealand Global dairy trade index -2.90% vs. 1.40% previously
- UK average earnings index 2.10% vs. 2.0%
- UK unemployment rate 5.10% vs. 5.10%
- Canada manufacturing sales m/m 2.30% vs. 0.40%
- US building permits 1.17mn vs. 1.20mn
- US housing starts 1.18mn vs. 1.15mn
- US CPI m/m -0.20% vs. -0.20%; Core CPI m/m 0.30% vs. 0.20%
- FOMC leaves interest rates unchanged
- New Zealand GDP q/q 0.90% vs. 0.70%
- Australia unemployment rate 5.80% vs. 6.0%
- SNB leaves LIBOR rate unchanged at -0.75%
- Switzerland PPI m/m -0.60% vs. 0.20%
- Eurozone final CPI y/y -0.20% vs. -0.20%; Core CPI y/y 0.80% vs. 0.70%
- BoE leaves rates unchanged at 0.50%
- Philly Fed manufacturing index 12.4 vs. -1.4
- US weekly unemployment claims 265k vs. 267k
- Germany PPI m/m -0.50% vs. -0.20%
- Canada Core retail sales m/m 1.20% vs. 0.60%; retail sales m/m 2.10% vs. 0.70%
- Canada Core CPI m/m 0.50% vs. 0.50%; CPI m/m 0.20% vs. 0.30%
