Asia markets have continued where US markets left off overnight after the latest China trade data saw big jump in imports and exports, while the trade surplus widened out to a six month high of $51.4bn, a fact that is unlikely to be lost on the new Trump administration, with exports rising 7.9%, while imports jumped sharply to, by over 16% .
As we come to the end of the third week of the Trump presidency and still with scant detail of what the new President intends to do with respect to future stimulus plans, financial markets latched on to his comments yesterday about “something phenomenal on tax in the next two to three weeks” like a thirsty man spying what looks like an oasis in the desert.
The move to new record highs in equity markets and surge in the US dollar are symptomatic of a market craving a new stimulus. The risk is that as with most oases they turn out to be an illusion, and given the new President’s propensity for melodrama the risk is that this could well be no different.
It is hard to imagine that he will be able to promise anything tangible within a two to three week window, however whatever the realities investors appear happy to take him at his word, as US markets closed well above their previous peaks, while the US dollar index looks set to post its first positive week this year.
The promise also helped European markets close higher for the third day in succession, though they still remain lower on the week as the fog of European politics continues to dominate sentiment, with the spat between Greece, the EU and the IMF prompting a sharp spike in Greek borrowing costs, after German finance minister Schaeuble said that the only way for Greece to get a debt cut would be to leave the euro.
While the back and forth with respect to Greece is nothing new, it’s been a staple for the past 6 years, the fact that Schaeuble appears to be showing them the way by talking about an exit so openly would appear to be a significant change of tack.
Definitely a case of be careful what you wish for, given that Greece is on course to post a primary surplus in 2018.
The pound looks on course to post a fairly positive week, after the inflation report induced falls of the previous week, having seen the Article 50 bill pass through the House of Commons this week without incident. We can partly thank Bank of England Monetary Policy Committee member Kristin Forbes for resilience of the pound after her comments this week that suggested she had a limited tolerance for higher inflation. It is therefore a pity that it was announced that she won’t be renewing her term on the MPC with the Bank when it runs out on the 30th June.
Having someone prepared to break away from the current groupthink mentality of the MPC was a welcome, if rare counterbalance to what still remains a questionable decision to cut rates and implement large scale QE in August last year. Ms Forbes dissented on the decision to implement further QE, alongside Ian McCafferty at the time. Let’s hope her replacement is as equally independent of thought.
On the data front we get the latest industrial and manufacturing production data for December which is expected to stay in positive territory after a strong rebound in November, and reinforce the resilient nature of the UK economy at the end of 2016.
Also on the agenda today and this weekend will be the meetings between Japanese Prime Minister Shinzo Abe and President Trump when the subject of currency manipulation is more than likely expected to come up given recent comments by the US President.
The weekend agenda is likely to be particularly topical since this week we’ve seen Germany’s latest trade surplus come in at €18.4bn, having already been labelled a currency manipulator by Peter Navarro, Donald Trump’s chief trade advisor. With China posting yet another huge surplus in figures out earlier today, these three countries make up a good part of the US deficit.
EURUSD – the 1.0720 area continues to frustrate and while it does so the risk of a move towards the 50 day MA at 1.0600 remains. A move through 1.0720 retargets the 1.0800 area.
GBPUSD – pushed up to 1.2580 yesterday before slipping back. The previous highs at 1.2700 remain the next target. The 50 day MA at 1.2410 remains a key support despite this week’s brief round trip to 1.2350.
EURGBP – while we hold below the 0.8570/80 area the bias remains for a move towards the 0.8470 area, and potentially lower. If we move back above the 0.8580 area then the previous peaks at the 0.8650 area come back into play.
USDJPY – after failing to move below the 111.60 area the US dollar has broken higher, through the 113.00 area, which should open up a move back to the 114.30 area. The remains a key resistance, and to stabilise we need to get back above here or run the risk of a deeper move towards 110.00
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