Weekly Outlook Ending on 11th February 2017
Currencies:
Dollar remains high despite of disappointing Data.
The dollar remained broadly higher against other major currencies, despite the release of disappointing U.S. consumer sentiment data, as recent comments by U.S. President Donald Trump continued to lend support. In a preliminary report, the University of Michigan said its consumer sentiment index fell to 95.7 in February from 98.5 the previous month, compared to expectations for a slip to 97.9.But the dollar remained supported after U.S. President Donald Trump said on Thursday that he would announce the most ambitious tax reform plan since the Reagan era in the next few weeks. During a meeting with airline CEOs on Thursday, Trump promised a “phenomenal” tax plan, without giving any specific details of the plan. Meanwhile, sentiment on the euro was still fragile amid concerns over the possibility of a Brexit or Trump-style shock result in France’s upcoming presidential election. Worries over elections in the Netherlands, Germany and possibly Italy, as well as the ongoing row over Greece's bailout added to concerns over political risk in the euro area. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.22% at a two-week high of 100.88.
Euro declines against strong dollar
The euro fell sharply on weekdays, as the dollar continued its rally from 3-week lows. The euro has slid 0.30% to a fresh two-week low of 1.0627. 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.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. 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 against the U.S. dollar on Friday, helped by the release of upbeat U.S. manufacturing production and trade data, although the greenback was still supported by recent comments by U.S. President Donald Trump. GBP/USD hit 1.2521 during European morning trade, the session high; the pair subsequently consolidated at 1.2515, up 0.14%.Cable was likely to find support at 1.2423, the low of February 6 and resistance at 1,2585, Thursday’s high. The U.K. Office for National Statistics said that manufacturing production rose 2.1% in December, beating expectations for a 0.5% gain. Manufacturing production climbed 1.4% in November, whose figure was revised from a previously estimated 1.3% rise. Year-on-year, manufacturing production increased by 4.0% in December, exceeding expectations for a 1.8% gain. The report also showed that industrial production rose 1.1% in December, more than the expected 0.2% gain. Data also showed that the U.K. trade deficit narrowed to £10.89 billion in December from £11.56 billion in November, whose figure was revised from a previously estimated deficit of £12.16 billion. Analysts had expected the trade deficit to hit £11.50 billion in December. But the dollar remained supported after U.S. President Donald Trump said on Thursday that he would announce the most ambitious tax reform plan since the Reagan era in the next few weeks. During a meeting with airline CEOs on Thursday, Trump promised a “phenomenal” tax plan, without giving any specific details of the plan. Sterling was also higher against the euro, with EUR/GBP shedding 0.26% to 0.8502.
Commodities:
Gold breaks on strong dollar.
Gold prices tumbled on Friday, as the U.S. dollar remained broadly supported following recent comments by U.S. President Donald Trump on tax reform and an upbeat jobless claims report added to optimism over the strength of the U.S. economy. On the Comex division of the New York Mercantile Exchange, gold futures for April delivery were down 1.12% at $1,223.00, the lowest since February 6. The April contract ended Thursday’s session 0.22% lower at $1,236.80 an ounce. Futures were likely to find support at $1,206.20, the low of February 3 and resistance at $1,243.50, Thursday’s high. Gold for April delivery on the Comex division of the New York Mercantile Exchange dropped 0.893% to $1,225.35 a troy ounce. Also on the Comex, silver futures for March delivery dropped 0.87% to $17.587 a troy ounce. China's January dollar denominated trade surplus came in at $51.35 billion, well above the $47.9 billion expected. Exports rose 7.9%, well above the 3.3% expected and imports jumped 16.7%, more than the 10% increase seen. Earlier China's customs said yuan-denominated exports rose 15.9% year-on-year and imports jumped 25.2% from a year earlier. Overnight, gold prices were slightly higher in North American morning trade on Thursday, hovering below the prior session's three-month high amid ongoing worries over political risks in Europe and economic uncertainty in the U.S. Uncertainty about European politics has boosted gold in recent sessions. Polls this week have shown German Chancellor Angela Merkel falling behind a candidate from the country's Social Democrats in this year's elections scheduled to take place in September. Polls have also suggested France's Marine Le Pen, who has vowed to pull France out of the euro zone, is gaining ground. Adding to the mood of uncertainty, elections will also be held in the Netherlands in March and possibly Italy. Traders also eyed political risk elements in the U.S., with President Donald Trump's administration on the back foot over its immigration and other policies.
Crude rallies to higher level.
Crude prices rallied in the U.S. on Friday as the International Energy Agency said global supply and demand is falling into balance. On the New York Mercantile Exchange crude for March delivery rose 1.62% to settle at $53.86 a barrel, while on London's Intercontinental Exchange, Brent gained 1.92% to $55.70 a barrel.
Global oil output dropped 1.5 million barrels per day (bpd) in January, the International Energy Agency (IEA) said on Friday, putting supply and demand on a path to balance later in this year after a major glut of crude on the market for nearly two years. Key to the drop was a coordinated pledge by OPEC and non-OPEC nations led by Russia to trim nearly 1.8 million bpd on average in the first six months of this year with compliance a touch over 90% in January, led by the world top exporter Saudi Arabia, IEA said. "Some producers, notably Saudi Arabia, (are) appearing to cut by more than required. This first cut is certainly one of the deepest in the history of OPEC output cut initiatives," the Paris-based IEA said. If the January level of compliance is maintained, IEA said, output reductions combined with strong demand growth should help ease the record stocks overhang in the next six months by around 600,000 bpd. Elsewhere, oil rigs at work in the U.S. rose by 8 to 591 by the end of last week, according to oilfield services firm Baker Hughes, marking the most since the week of Oct. 23, 2015 when the count stood at 594.
Stocks
U.S. stocks and S&P 500 gained on weekdays and major stocks are trading in all-time high.
It was positive week for U.S. equities. Starting with the U.S. stocks; Dow Jones added 215 points and 1.06%. Nasdaq Composite gains 1.36% and 78 point. S&P 500 gains 23 points and 1.22 % for the week.
Coming to European counterparts, UK’s FTSE 100 gained 67 points and 0.92%. German DAX 30 gained 68 points and 0.58%. Additionally French CAC 40 added 4 points and 0.08% on the weekly basis.
In commodities Gold gains $12 while Crude Oil loss $.90 over the week.
Euro loss 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.