Weekly Review April 10
There were choppy trading conditions during the week with markets having to digest mixed US economic data and important geo-political concerns. Risk appetite dipped following the US missile strike on Syria with the yen gaining defensive support, but the dollar eventually gained ground late on Friday as unemployment dipped to a 10-year low.
The ISM manufacturing ISM index declined slightly to 57.2 for March from 57.7 the previous month, although there was a firm employment reading. The non-manufacturing ISM index declined to 55.2 from 57.6 previously with a weaker reading for employment.
The ADP employment report was stronger than expected with a 263,000 increase for March following a downwardly-revised 245,000 the previous month.
Minutes from the Federal Reserve March policy meeting revealed a split of opinion over whether the increase in inflation required a faster rate of interest rate increases or whether the current gradual policy could be sustained. There was general agreement that bond re-investment could be scaled back or stopped from later in 2017.
The headline payrolls increase for March was notably weaker than expected at 98,000 compared with consensus forecasts of around 180,000. Unemployment, however, declined to a 10-year low of 4.5% from 4.7% previously.
The dollar struggled for direction during much of the week, although there was an eventual move stronger following the US data with the trade-weighted index moving above 101.00.
The UK PMI manufacturing index declined slightly to 54.2 from 54.5 previously while the construction index also declined slightly. In contrast, there was a significant improvement in the services-sector index to 55.0 from 53.3 previously, the highest reading for three months.
Bank of England external MPC member Vlieghe stated that the bank should be cautious surrounding interest rates. In his opinion, it would be a much bigger policy mistake to raise interest rates too soon rather than delaying an increase for too long.
Sterling held its position against most majors including the Euro, although there were net losses against the US currency with a dip below 1.2400.
The German factory orders data was stronger than expected with an increase of 3.4% for March with industrial production data also better than expected.
German Bundesbank President Weidmann stated that the time for reducing bond purchases was drawing closer and that purchases should cease within 12 months.
In contrast, ECB President Draghi stated that there was no need to consider a change in monetary stance at this stage given that there was little evidence of a sustained increase in inflation and other comments were relatively dovish.
Expectations that the ECB would maintain a dovish stance in the short term undermined the Euro with EUR/USD dipping to below the 1.0600 level.
The Reserve Bank of Australia held interest rates at 1.50% following the latest monetary policy meeting.
The Bank of Canada outlook survey was generally optimistic surrounding the economic outlook and the latest employment data was better than expected for the 8th successive month, although the trade account moved back into deficit for February.
The US decision to launch a cruise-missile attack on Syria following allegations of a chemical weapons attack by the Assad government triggered wider concerns surrounding US relations with Russia and overshadowed talks with Chinese President Xi as President Trump called on Xi to do more to narrow the Chinese trade surplus and curb the North Korean nuclear programme.
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