The Yen strengthened through the morning as concerns over trade tariffs reignited and, while the moves in the currency markets were more predictable, the equity markets were in a world of their own, with the Hang Seng and CSI300 in positive territory in spite of the Dow Futures coughing up more than 300 points.
Earlier in the Day:
Key macroeconomic data released through the Asian session this morning was limited to Australia’s 4thquarter GDP.
Year-on-year, the economy grew by 2.4%, falling short of a forecasted 2.5%, following growth of 2.8% in the 3rd quarter.
Quarter-on-quarter, the economy grew by just 0.4%, falling short of a forecasted 0.5%, with growth slowing from a 3rd quarter upwardly revised 0.7%.
The Aussie Dollar moved from $0.77810 to $0.77829 upon release of the figures, having already tumbled ahead of the data release on news of the resignation of Gary Cohn, the White House economic adviser.
At the time of writing, the Aussie Dollar was down 0.31% to $0.7805, recovering from an intraday low $0.7772, hit early in the session. In contrast, the Kiwi Dollar was up 0.01% to $0.7291.
Following Cohn’s resignation, the U.S administration announced plans to review China’s FDI into the U.S and expand the tariffs beyond aluminium and steel. The markets were certainly not happy about it.
The Japanese Yen was up 0.41% to ¥105.7 against the Dollar, though it could have been worse, the Yen having hit an intraday high ¥105.46 early in the session, in response to news from Capitol Hill.
In the equity markets, there was a greater degree of resilience to the noise, with the Hang Seng and CSI300 up 0.15% and 0.29% respectively, at the time of writing, while the ASX200 was down 0.91% and the Nikkei down by 0.19%. Direction though the early part of the day was mixed and did not reflect the threat a trade war poses to economic growth and corporate earnings. The moves were certainly in contrast to the Dow Mini, with the Dow futures down 324 points.
The Day Ahead:
For the EUR, material economic data through the session is limited to the Eurozone’s finalized 4th quarter GDP numbers, which are forecasted to be in line with 2nd estimates.
Barring any deviation from 2nd estimate figures, the numbers are EUR positive, reflecting continued growth in the Eurozone economy, though how much of an influence the figures will have remains to be seen. Concerns over a trade war have been reignited and risk appetite through the day will likely be the key driver ahead of tomorrow’s ECB monetary policy and the all-important press conference.
The ECB’s not expected to tweak deposit or interest rates, but could surprise the markets with a view on when and how they intend to bring an end to the asset purchasing program. How events unfold on Capitol Hill between now and then may be a factor that the ECB may need to consider however and then there is also Italy and the political uncertainty for the ECB to also factor in.
At the time of writing, the EUR was up 0.08% to $1.2414, with Italy’s political woes the least of the market’s concern.
For the Pound, it’s another quiet day ahead on the data front, with key stats out of the UK limited to February house price figures due out this morning. We don’t expect the figures to have a material influence on the Pound however, with Brexit chatter and this afternoon’s UK annual budget release the key drivers for the Pound.
At the time of writing, the Pound was up 0.03% to $1.3892, with the Pound eyeing $1.39 levels, as it looks to claw its way back to the $1.40s on hopes of a favourable agreement on Brexit.
Across the Pond, economic data out of the U.S includes February’s ADP Nonfarm Employment Change, 4thquarter productivity and unit labour cost numbers together with January’s trade balance.
While the ADP numbers will provide the Dollar with some immediate direction, the frequent divergence between the ADP and government numbers discount the influence of the ADP numbers, particularly at current unemployment rate levels. Of greater influence will be further news on the administration’s intentions on trade.
FOMC members Dudley and Bostic are scheduled to speak through the day and of interest will be whether either makes any references to the latest tariff chatter and whether this could have an influence on near-term policy decisions.
FOMC voting member Brainard, who is considered to be one of the more dovish members of the FED, raised concerns that the FED may be moving too slowly on rate hikes this morning, saying that existing economic tailwinds are capable of steepening the rate path.
At the time of writing, the Dollar Spot Index was down 0.12% to 89.514, with direction through the day likely to be hinged on noise from Capitol Hill, with even hawkish FOMC member commentary unable to provide the U.S Dollar with support.
Across the border, it’s a big day for the Loonie, with economic data out of Canada including January’s trade figures and 4th quarter productivity. The stats will provide some direction, though the main event will be the Bank of Canada’s interest rate decision and release of its rate statement this afternoon.
We had previously seen the Bank of Canada decide to tread carefully, while NAFTA negotiations were ongoing. The latest trade saga, which spells trade war for many, is likely to be of greater concern and gives the BoC sound justification to remain cautious over the near-term, which should be Loonie negative.
At the time of writing, the Loonie was down 0.35% to $1.2921 against the U.S Dollar, with tariffs and NAFTA returning as a material concern for the BoC.