Weekly Outlook Ending on 4th February 2017
Dollar remains high with the strong Job Data.
The dollar remained broadly higher against the other major currencies, after data showed that the U.S. created far more jobs than expected last month, adding to optimism over the strength of the job market. The U.S. Department of Labor said the economy added 287,000 jobs in June, compared to expectations for a 175,000. The number of jobs created increased by 11,000 in May, whose figure was revised from a previously estimated gain of 38,000.The report also showed that the unemployment rate ticked up to 4.9% last month from 4.7% in May, compared to expectations for a rise to 4.8%.Meanwhile, average hourly earnings rose 0.1% last month, disappointing expectations for a 0.2% gain and after a 0.2% increase in May. The report came after data on Thursday showed that the number of individuals filing for initial jobless benefits in the week ending July 2 declined expectedly, while payroll processing firm ADP said non-farm private employment rose more than expected last month. GBP/USD was up 0.33% at 1.2946, still hovering close to Wednesday’s 31-year lows of 1.2797.In the U.K., investors shrugged off a report by the Office for National Statistics on Friday showing that the country's goods trade deficit widened to £9.88 billion from £9.41 billion in April, whose figure was revised from an initial deficit of £10.53 billion. Economists had expected the goods trade deficit to come in at £10.65 billion in May. But the pound still remained under heavy pressure, as Britain’s shock decision to leave the European Union continued to fuel uncertainty over the consequences of the U.K. vote on the country’s economy.
Euro declines against strong dollar
The euro fell sharply on Friday, as the dollar continued its rally from 9-month lows amid an unexpected surge in U.S. consumer sentiment. The euro has now closed lower versus the dollar in eight of the last nine sessions. Despite the recent downturn, the euro is still up against American counterpart by more than 4% since the start of the year. EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.On Friday morning, the University of Michigan's Consumer Survey Center said its Consumer Sentiment Index soared nearly seven points in its mid-May flash reading to 95.8, significantly above consensus expectations of 89.7. It came weeks after consumer sentiment slumped to 89.0 in the final April reading, dropping to its lowest level since last September. In the May reading, though, the expectations component surged nearly 10 points to 87.5, pulling up the general index. Over the last year, the sluggish expectations component has dragged down consumer sentiments overall. Earlier on Friday, the U.S. Census Bureau said retail sales last month jumped by 1.3%, above consensus expectations of 0.9%, rebounding from a 0.3% decline in March. The overall reading received a lift from auto sales, which surged 3.2% on the month. Still, core retail sales, which discounted the effects of auto purchases, increased by 0.8% above analysts' forecasts for gains of 0.5%.Investors also continued to react to a letter from Federal Reserve chair Janet Yellen to a member of the House Financial Services Committee on Thursday afternoon regarding the Fed's remote possibility likelihood of adopting a negative interest rate policy in the near future. In the letter addressed to Rep. Brad Sherman, Yellen said the Fed would not rule out the possibility of lowering rates into negative territory if an extremely adverse scenario arises in the coming months. Over the Federal Open Market Committee's (FOMC) first three meetings of 2016, the U.S. central bank has held its benchmark interest rate steady while central banks in Japan and the euro area have adopted negative interest rate regimes. Market players also reacted to a flattening in the yield curve between short-term U.S. 2-Year Treasuries and longer-term 10-Year government bonds in Friday's session. At session-highs, the 2-year surged to 0.786%, its highest level in 10 days. Around the same time, government bond yields on the 10-year fell to a one-month low at 1.705%. A flattening of the yield curve typically sends indications of a slowdown in short-term economic activity.
Pound posted modest Gains.
Pound posted modest gains on Friday to post a rare winning session, as the dollar wavered throughout a choppy day of trading after reports showed that the U.S. labor market added the highest number of jobs in June in nearly 10 months. The currency pair wavered between 1.2881 and 1.3018, before settling at 1.2952, up 0.0046 or 0.36% on the session. With the slight gains, the British Pound recorded just its fourth winning session since voters in the U.K. surprisingly backed a referendum last month paving the way for a departure from the E.U. Since eclipsing 1.50 in the hours before the final vote was tallied, the Pound has tumbled nearly 13% over the last two weeks. On Wednesday, the Pound Sterling extended previous losses against the Dollar to slide below 1.28 for the first time in 31 years.On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics said nonfarm payrolls rose by 287,000 in June, defying expectations for an increase of 180,000 and posting the highest monthly gains in eight months. The struggling labor market demonstrated broad signs of improvement last month following downwardly revised gains of 11,000 in May, providing indications that the weak hiring period in late-Spring could have been an anomaly. Nevertheless, the three-month moving average fell sharply to 147,300, in line with the Fed's expectations, down from 195,700 over the first quarter.Within the report, the gains were concentrated in leisure and hospitality, health care and social assistance and financial assistance. The leisure and hospitality category added 58,000 positions for the month after remaining relatively flat in May. The telecommunications industry also experienced a snapback, adding 28,000 positions as thousands of Verizon workers returned to work following a labor dispute the previous month. At the same time, the struggling manufacturing sector reported a rare gain, adding 14,000 jobs on the month. Notably, approximately 90% of the job increases in June went to workers aged 55 or above.
Gold holds strong despite of positive U.S.data.
Gold prices rose in the U.S. on Friday as fresh U.S. sanctions on Iran added to geopolitical concerns and a soft U.S. jobs report clouded the outlook for as many as three rate hikes this year forecast by the Fed.Gold Futures for April delivery on the Comex division of the New York Mercantile Exchange rose 0.11% to $1,220.75 a troy ounce. Copper futures slumped 2.55% on the Comex to $2.617 as BHP Billiton (LON:BLT)'s Escondida mine in Chile, the world's biggest copper operation, has resumed work as the company has requested government mediation to avoid a looming strike. The U.S. Treasury Department sanctioned more than two dozen Iranian, Chinese, and Emirati businesses and persons for supporting Iran’s ballistic missile program and named officers and business executives tied to Iran’s elite military unit, the Islamic Revolutionary Guard Corps, for their suspected role in aiding the Lebanese militia, Hezbollah, and Tehran’s defense industries. U.S. Officials said the sanctions, the first issued against Iran in more than a year, didn’t violate the landmark nuclear agreement Tehran reached with the U.S. and other world powers in 2015. President Donald Trump issued a cryptic tweet after the sanctions. While Federal Reserve chair Janet Yellen has emphasized the importance of not placing an undue amount of weight on a single report, the Federal Open Market Committee (FOMC) characterized the slowing labor market as a factor for holding interest rates steady at its monetary policy meeting last month. Prior to the disappointing report, Yellen said at a speech at Harvard University in late-May that it could be appropriate to raise interest rates in the coming months. Since then, the FOMC lowered its long-term rate outlook while markets have taken a 2016 rate hike off the table entirely.
Crude drop biggest since January
Crude prices inched up in choppy trading on Friday but Brent notched its largest weekly drop in nearly six months, as strong U.S. jobs data and bargain hunting by investors pitted against seasonally weak consumption of oil. The oil market initially rose about 1 percent or more after the U.S. economy posted the largest job gains in eight months in June and on worries about fresh militant attacks on Nigerian oil infrastructure.
Oversupply concerns, however, resurfaced with data showing the U.S. oil rig count rose by 10 this week as drillers added rigs for a fifth week in six as analysts to predict the near two-year slump in drilling has bottomed and production will start to edge up early next year.
"Some of the gloom and doom on demand destruction for oil has gone away with the U.S. jobs numbers," said Phil Flynn, analyst at Chicago-based brokerage Price Futures Group. Brent crude futures (LCOc1) ended the session up 36 cents, or 0.8 percent, at $54.76 per barrel, after trading between $54.23 and $55.15.U.S. crude's West Texas Intermediate (WTI) futures (CLc1) settled up 27 cents at $55.41, compared with an earlier drop to $53.77 and a high of $54.97.Both benchmarks were down nearly 8 percent for the week - the largest weekly slide for Brent since January and the biggest weekly drop for WTI since February. Crude futures remain some 75 percent above 12-year lows of $27 for Brent and $26 for WTI hit in the first quarter. But the market has gyrated since hitting above $50 as a glut of refined products replaced worries about crude oversupply that caused a near two-year long tumble earlier.
U.S. stocks and S&P 500 gained on week.
It was positive week for U.S. equities. Starting with the U.S. stocks; Dow Jones added 188 points and 1.04%. Nasdaq Composite gains 1.83% and 91 point. S&P 500 gains 23 points and 1.22 % for the week.
Coming to European counterparts, UK’s FTSE 100 holds the same Levels. German DAX 30 lost 138 points and 1.43%. Additionally French CAC 40 losses 86 points and 2.05% on the weekly basis.
In commodities Gold gains $25 while Crude Oil gains $1.90 over the week.
Euro gain 1.34% over the week while Yen gain 0.56 %. Pound loss 0.72% and dollar index added 0.65% on this week.
Note: Here all the currencies are measured in percentage against the U.S. dollar.