Weekly Outlook Ending on 3rd September 2016
Weekly Outlook Ending on 3rd September 2016
Dollar continues gains despite negative job data.
The dollar erased losses and bounced off a one-week trough against the other major currencies on Friday, despite the release of disappointing U.S. economic reports. The U.S. Census Bureau said factory orders increased by 1.9% in July, slightly below forecasts for a gain of 2.0%.The report came after the U.S. Labor Department said the economy added 151,000 jobs in August, disappointing expectations for an increase of 180,000. The number of jobs created increased by 275,000 in July, whose figure was revised from a previously estimated 255,000 gain. The U.S. unemployment rate remained unchanged at 4.9% this month, confounding expectations for a downtick to 4.8%.The report also showed that average hourly earnings rose 0.1% in August, below expectations for a 0.2% increase and after a 0.3% gain the previous month. On a more positive note, the Bureau of Economic Analysis said the U.S. trade deficit narrowed to $39.47 billion in July from $44.66 billion in June, whose figure was revised from a previously estimated deficit of $44.50 billion. Analysts had expected the trade deficit to marrow to $42.70 billion in July. Research group Markit said on Friday that’s its U.K. construction purchasing managers’ index rose to 49.2 in August from 45.9 the previous month, beating expectations for an increase to 46.1.The data came a day after Markit said its U.K. manufacturing PMI rose to a 10-month high this month, easing concerns over a potential economic slowdown in the U.K. following the June 23 vote to leave the European Union.
Euro post continues 2 week loss against dollar.
EURO fell to close lower for session, amid soft durable goods orders in the U.S. and further indications that the Federal Reserve could increase the pace of its first tightening cycle in nearly a decade. Since surging to five-month highs last week, the euro has fallen more than 1.25% against the dollar. At session-lows, the euro dropped to its lowest level since the Fed rattled currency markets worldwide last week by unexpectedly reducing its interest rate forecast for the next three years. More broadly, the euro is down by roughly 1% over the last six weeks. A host of key policymakers from the Fed have struck a considerably more hawkish tone this week, days after the FOMC expressed concern that it may need to slow its outlook for future tightening against a backdrop of slowing global economic conditions. Earlier on Thursday, Federal Reserve of St. Louis president James Bullard hinted that the U.S. central bank's next rate hike could be looming if the U.S. economy demonstrates continued improvement over the next few weeks. While delivering a speech in New York, Bullard noted that the Fed could raise rates when it meets again in late-April and its next rate hike "may not be far off" if inflation continues to increase and unemployment declines from December levels. Bullard’s comments come in the wake of a wave of hawkish statements by his colleagues at the Federal Open Market Committee (FOMC) earlier this week. On Wednesday, Philadelphia Fed president Patrick Harker also recommended that the FOMC raise rates as early as April, while suggesting as many as three rate hikes by the end of the year. Harker's statements followed comparable hawkish positions from San Francisco Fed president John Williams and Atlanta Fed president Dennis Lockhart at the start of the week. They also contradict comments from Janet Yellen at a press conference last week when the Fed chair noted that the central bank should remain cautious with future rate hikes, amid heightened risks in global financial markets.
Pound in month high after U.K data.
The pound held steady near one-month highs against the U.S. dollar on Friday, after the release of upbeat U.K. construction data, as investors remained cautious ahead of a highly-anticipated U.S. employment report due later in the day. GBP/USD hit 1.3293 during European morning trade, the session high; the pair subsequently consolidated at 1.3275.Cable was likely to find support at 1.3123, Thursday’s low and resistance at 1.3372, the high of August 3.Research group Markit said on Friday that’s its U.K. construction purchasing managers’ index rose to 49.2 in August from 45.9 the previous month, beating expectations for an increase to 46.1.The data came a day after Markit said its U.K. manufacturing PMI rose to a 10-month high of 53.3 this month from a reading of 48.2 in July. Analysts had expected the index to rise to 49.0 in August. The upbeat data eased concerns over a potential economic slowdown in the U.K. following the June 23 vote to leave the European Union. The greenback had weakened after the Institute for Supply Management said on Thursday that its manufacturing activity index dropped to 49.4 last month from July’s reading of 52.6. It was the worst reading since January and missed expectations for a slight drop to 52.0.The report came shortly after data showed that U.S. initial jobless claims increased by 2,000 to 263,000 last week, compared to expectations for a 4,000 rise to 265,000.
Gold Surged after U.S. Job Data.
After dropping to near one-month lows on Thursday, gold surged nearly $12 after disappointing U.S. Job Data. On the Comex division of the New York Mercantile Exchange, gold for May delivery traded in a tight range between $1,212.90 and $1,225.90 an ounce before settling at $1,224.60 on the session. At session lows, gold futures fell to their lowest levels since June. It came one day after the precious plummeted more than 2%, suffering one of its worst one-day losses in 2016, due primarily to mounting expectations for multiple interest rate hikes by the Federal Reserve before the end of the year .Despite the recent losses, gold is still up by approximately 20% since the start of the year and is on track for one of its strongest opening quarters since the start of the year. Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,363.70, the high from July. Gold continued its slide on Thursday morning when Federal Reserve of St. Louis president James Bullard hinted that the U.S. central bank's next rate hike could be looming if the economy demonstrates continued improvement over the next few weeks. While delivering a speech in New York, Bullard noted that the Fed could raise rates when it meets again in late-September and its next rate hike "may not be far off" if inflation continues to increase and unemployment declines from December levels. Harker's statements followed comparable hawkish positions from San Francisco Fed president John Williams and Atlanta Fed president Dennis Lockhart at the start of the week.
Crude recovered on weekend trading session.
Oil prices rose 3 percent on Friday as a report showing weaker U.S. jobs growth in August suppressed the dollar, pushing up commodities, but crude futures remained on track for a big weekly loss on glut concerns. U.S. employment growth eased more than expected last month after two straight months of robust gains and wage gains moderated, casting doubts the Federal Reserve Open Market Committee will raise interest rates at its Sept. 20-21 meeting. The dollar index weakened after the jobs report, making oil and other greenback-denominated commodities more affordable for holders of the euro and other currencies. [FRX/]Oil traders and investors will be on the lookout later in the afternoon for the weekly rig count report from energy services provider Baker Hughes. The oil rig count was unchanged last week after eight weeks of consecutive rises, but traders and analysts expect it to continue rising with the recovery in crude prices. Brent crude futures were up $1.38, or 3 percent, at $46.83 a barrel. It was down about 6 percent on the week, on track for its biggest weekly loss since late July. U.S. West Texas Intermediate futures gained $1.30 cents, also 3 percent, to $44.46. WTI was on course to a near 7-percent drop on the week, its most since early July. "With the FOMC likely to stay in September and the dollar dictating where we could go, it's quite likely oil will hold at mid-$40 levels," said Carl Larry Director, director of business development for oil & gas at Frost & Sullivan. "But more telling of how oil performs will be the rig count in coming weeks and OPEC gestures to support prices."
Summary of the week:
It was a good week for U.S. equities. Starting with the U.S. stocks; Dow Jones gains 19 points and 0.11%. Nasdaq Composite gain 0.36% and raise 19 point. S&P 500 up by 3 points and gained 0.14% for the week.
Coming to European counterparts, UK’s FTSE 100 gained 84 points and 1.29%. German DAX 30 also gained 124 points and 1.16%. Additionally French CAC 40 gain 115 points and 2.53% on the weekly basis.
In commodities Gold gained $5.7 and Crude Oil down by by $2.92 and over the week.
Euro gain 2.78% over the week while Yen gain 2.52%. Pound gain 1.71% & Ice dollar index got 1.20% on this week.
Note: Here all the currencies are measured in percentage against the U.S. dollar
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