Market panorama. 17 August 2018

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I. Market focus

At the beginning of the final session of the week, the news background was rather limited. The most significant event of Friday’s morning session was the Reserve Bank of Australia (RBA) governor Philip Lowe’s parliamentary testimony. Overall, Lowe's statements were positive. For example, the head of the regulator noted progress in bringing inflation to target levels and reducing the unemployment rate, and achieving full employment as well. He also added that the further gradual progress on both fronts is likely to be made over the next few years. Positive statements were balanced by the note that the number of risks to the global economy increased. In regards to the prospects for monetary policy, the RBA’s governor said that the next move in interest rates is expected to be up, but he did not give a clue on the timing of the action. The Australian dollar reacted to the comments of the central bank’s governor by a very limited increase, as the above-mentioned statements of Lowe, for the most part, were ignored by the markets. His comments on the U.S. Federal Reserve actions were also overlooked. The head of the Australian central bank noted that the sizeable fiscal stimulus of the U.S. government at the current stage of the economic cycle, when the U.S. economy is in good shape and the unemployment is very low, can lead to a surge in inflation, which will force the Fed to withdraw monetary accommodation more quickly than currently projected, and this will have disruptive consequences for financial markets.

The main macroeconomic reports today will be data on inflation in the Eurozone (09:00 GMT) and Canada (12:30 GMT). In addition, attention should be paid to the U.S. data on consumer sentiment (14:00 GMT).


II. The market highlights are:

  • The Commerce Department reported on Thursday the building permits issued for privately owned housing units rose by 1.5 percent m-o-m in July to a seasonally adjusted annual pace of 1.311 million, while housing starts increased by 0.9 percent m-o-m to an annual rate 1.168 million. Economists had forecast housing starts growing to a 1.260 million-unit pace last month and building permits increasing to a 1.310 million-unit rate. According to the report, permits for single-family homes, the largest segment of the market, jumped 1.9 percent m-o-m to 869,000 in July, while approvals for the multi-family homes segment advanced 0.7 percent m-o-m to a 442,000 unit-rate. In the meantime, groundbreaking on single-family homes rose 0.9 percent m-o-m to an 862,000-unit pace in June, while housing starts for the multi-family segment gained 0.7 percent m-o-m to a 306,000-unit pace.

  • The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits unexpectedly fell last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 2,000 to 212,000 for the week ended August 11. Economists had expected 215,000 new claims last week. Claims for the prior week were revised upwardly to 214,000 from the initial estimate of 213,000. Meanwhile, the four-week moving average of claims fell 1,000 to 215,500 last week.

  • The Federal Reserve Bank of Philadelphia announced on Thursday its index of current manufacturing activity in the region dropped to 11.9 in August from an unrevised reading of 25.7 in July. That was the lowest reading since November of 2016. Nearly 32 percent of the manufacturers reported increases in overall activity this month, while 20 percent reported decreases, the FRB of Philadelphia said. The details of the report were mostly lower. The indexes for new orders (-21.5 points m-o-m to 9.9 in August) showed the biggest slowdown in the rate of growth, as more than 34 percent of the firms reported an increase in new orders, while 24 percent reported a decrease.

  • Statistics New Zealand reported on Thursday that producer output prices increased 0.9 percent in the second quarter of 2018 after gaining 0.2 percent in the first quarter. Meanwhile, input prices rose 1.0 percent last quarter, following a 0.6 percent advance in the prior quarter. According to the report, the output prices were up primarily due to hike in prices for whole milk powder and fuel, while the growth in input prices was mainly attributable to higher prices for imported crude oil.


III. Market Situation
Currency Market
The currency pair EUR/USD consolidated near the opening level, due to the stabilization of the U.S. dollar and the lack of new drivers. Market participants are preparing for the release of the inflation data for the Eurozone and a report on consumer sentiment in the U.S. Economists forecast that the Eurozone’s consumer price index (CPI) in July fell by 0.3 percent m-o-m but increased by 2.1 percent y-o-y. In June, the CPI rose 0.1 percent m-o-m and 2.0 percent y-o-y. As for the U.S. data, experts predict that the preliminary estimates by Reuters/Michigan will show the consumer sentiment index improved to 98.0 points in August from 97.9 points in July. Resistance level - $1.1433 (high of August 13). Support level - $1.1291 (low of June 28, 2017).

The currency pair GBP/USD traded slightly higher, remaining near the 14-month low. The pair was supported by a rebound in investors' appetite for risky assets, as well as a pause in the strengthening of the U.S. currency. At the same time, the pound continued to be under pressure due to worries that Britain's economic performance could deteriorate after Brexit. With an empty economic calendar in the UK ahead, market participants will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.2827 (high of August 14). Support level - $1.2652 (low of June 22, 2017).

The currency pair AUD/USD rose slightly, supported by the comments of the Reserve Bank of Australia (RBA) governor Philip Lowe. In his opening statement to the Australian MPs, Lowe used the word "gradually" six times, indicating that central bank officials are willing to stay patient on policy. He forecast that wages growth and inflation will pick up gradually over the next couple of years as the labour market continues to tighten. “With the central scenario being for the economy to continue on its recent track, it is more likely that the next move in interest rates will be an increase, not a decrease,” he added. Resistance level - AUD0.7453 (high of August 9). Support level - AUD0.7202 (low of August 15).

The currency pair USD/JPY demonstrated a slight decrease, partly due to the reports of the Wall Street Journal that the Trump administration is prepared to impose sanctions on all countries that buy oil from Iran after a deadline in November, including China, the largest importer of Iranian crude. In addition, investors' focus is gradually shifting to the trade negotiations between China and the U.S., scheduled to be held on August 21 and 22. These negotiations, perhaps, will bring some relief to financial markets. Nevertheless, White House Economic adviser warned Beijing “not to underestimate the determination of President Trump to follow through and seek zero tariffs and nontariff barriers.” Resistance level - Y111.43 (high of August 15). Support level - Y110.10 (low of August 13).

Stock Market

Index

Value

Change

S&P

2,840.69

+0.79%

Dow

25,558.73

+1.58%

NASDAQ

7,806.52

+0.42%

Nikkei

22,270.38

+0.35%

Hang Seng

27,201.10

+0.37%

Shanghai

2,669.10

-1.33%

S&P/ASX

6,339.20

+0.17%


U.S. stock indexes closed higher on Thursday, supported by upbeat quarterly reports from Walmart (WMT) and Systems (CSCO), as well as news that trade talks between China and the U.S. would be resumed later this month. The focus also was on the U.S. housing market data for July and weekly jobless claims. The Commerce Department reported the building permits issued for privately owned housing units rose by 1.5 percent m-o-m in July to a seasonally adjusted annual pace of 1.311 million, while housing starts increased by 0.9 percent m-o-m to an annual rate 1.168 million. Economists had forecast housing starts growing to a 1.260 million-unit pace last month and building permits increasing to a 1.310 million-unit rate. Meanwhile, the data from the Labor Department revealed the number of applications for unemployment benefits unexpectedly fell last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 2,000 to 212,000 for the week ended August 11. Economists had expected 215,000 new claims last week.

Asian stock indexes closed mostly higher on Friday on the back of Wall Street's overnight rally and expectations of a new round of trade talks between China and the U.S. next week.

European stock indexes are expected to trade higher in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.87% (+1 basis points)
Yields of German 10-year bonds hold at 0.32% (0 basis points)
Yields of UK 10-year gilts hold at 1.24% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded little changed. Crude oil for delivery in September settled at $65.44 (-0.03%). The crude oil prices were flat as the latest disappointing data on the U.S. crude inventories were offset by reports that the U.S. and China intend to resume trade talks after a two-month stalemate. In addition, investors are preparing for the release of weekly data on the U.S. oil rig count from Baker Hughes (at 17:00 GMT). The report, which released a week ago, revealed the that the number of active U.S. rigs drilling for oil climbed by 10 to 869 during the week ended August 10. In the prior week, the oil-rig count rose by two. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, also rose by 13 to 1,057, as the gas rig count increased by three to 186 last week, and the miscellaneous rig count remained at 2.

Gold traded at $1,174.00 (+0.01%). Gold prices consolidated near the opening level, due to the stabilization of the U.S. currency and the lack of new catalysts. Experts say that the impetus to gold prices could be provided by the sustainable rollback in the U.S. dollar and the rally in prices for other metals such as silver and copper.

IV. The most important scheduled events (time GMT 0)


08:00

Eurozone

Current account, unadjusted

09:00

Eurozone

Harmonized CPI ex EFAT

09:00

Eurozone

Harmonized CPI

12:30

Canada

Foreign Securities Purchases

12:30

Canada

Bank of Canada Consumer Price Index Core

12:30

Canada

Consumer Price Index

14:00

U.S.

Leading Indicators

14:00

U.S.

Reuters/Michigan Consumer Sentiment Index

17:00

U.S.

Baker Hughes Oil Rig Count


Focus market

  • The number of job openings was little changed at 6.7 million on the last business day of June
  • UK house prices in the three months to July increased by 3.3% against the same period a year earlier
  • German industrial production declined more then expected in June
  • The average of household spending in Japan was down 1.2 percent on year
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