Weekly Market Insight - November 13th 2017 - London Academy of Trading

The U.S. Dollar weakened against all major currencies last week for despite commencing on a positive note the lack of hard, new data and somewhat overstretched technicals, the path of least resistance was to drift into a pullback.

One issue that undermined the US unit was the sense on Thursday that Congress may seek to delay President Trump’s tax reform. Enough of a shock to see the Dollar Index fell a little approximately 0.5% last week.

The House is widely expected to vote on the tax bill next week but based on Thursday’s headlines, it will encounter significant resistance in the Senate. Senators Bill Cassidy and John Thune claim that the House and Senate are not on the same page.

The Senate plans to keep seven tax brackets instead of the four proposed by the House, and at different levels from what is currently in place. They also want to delay the corporate tax cut to 2019 and scrap the excise tax on payments offshore.

The Euro endured plenty of intraday volatility, however, it did make a temporary trip back to EURUSD 1.1600 before ending the day near 1.1650. Stronger-than-expected German trade and current account data helped spark the initial bid in the single currency. Still, the USD sell-off on Thursday Underpinned the Euro’s rise.

Comments from European Central Bank (ECB) officials were also less pessimistic with ECB member Constancio saying no decision has yet been made about buying more corporate bonds and member Lane adding that the bar for another QE extension is higher. So, while they are not ready to raise the refinancing interest rate anytime soon, they also have no plans to increase stimulus.

After consolidating in a very tight range over the past 3 trading days, Thursday’s push higher in the EURUSD puts the pair on track for a move to the November high of 1.1690.

It has gone a little quiet in Spain over Catalonia, however, do not be caught off-guard. The European Commission forecast the Catalonia crisis could put Spain’s future economic growth at risk.

In its newly released autumn forecast, the EU body predicts that Spain’s GDP will grow by 3.1% in 2017 (up from 2.8% in a previous prediction and 2.5% in 2018, up from 2.4%).

The Catalonia crisis could change things as the European Commission noted that the Spanish Government had cut its economic growth forecast for 2018 from 2.6% to 2.3%, saying the political crisis in Catalonia was creating uncertainty.

The Middle East; be wary of Saudi and Iranian ambitions

The drama continues in Saudi Arabia with reports that King Salman will be stepping down and transferring power to his son, the Crown Prince Mohammed bin Salman. The two have aggressively run a campaign to consolidate power but they’ve also become increasingly critical of Iran.

Bahrain, linked to Saudi Arabia by a causeway said an explosion which caused a fire at its main oil pipeline on Friday was caused by “terrorist” sabotage. It increased the tension by suggesting the attack was linked with insurgents that supported Iran.

The Bahraini interior ministry said on its website:

“The incident was an act of sabotage and a dangerous act of terrorism aimed at harming the higher interests of the nation and the safety of the people. Terrorist acts witnessed by the country in the recent period are carried out through direct contacts and instructions from Iran, …”

Despite this crude oil prices settled lower on Friday, as investors fretted over an uptick in U.S. production, but losses were limited as expectations grew that Opec would extend its agreement on output curbs.

On the New York Mercantile Exchange, crude futures for December delivery fell 0.7% to settle at $56.74 a barrel.

Crude Oil futures fell to a weekly loss as investors were digesting a report from Baker Hughes showing the number of oil rigs operating in the US rose to the highest in almost a month by 9 to 738.

This uptick in rig counts added to concerned over rising U.S. output after federal energy projections this week estimated U.S. production to rise to 9.2 million barrels per day (bpd) in 2017 and a record 10.0 million bpd in 2018.

The calendar highlights

Stay alert on Monday as there will be comments from the heads of the Bank of England, the ECB and the Federal Reserve.

The Euro and Dax may enjoy a lift as at 10:00 GMT the German ZEW Index is released for November with a reading of 20.0 expected, up from 17.6 in October.

On Wednesday at 13:30 GMT the US will have a raft of data that will prove a mixed bag:

Core CPI (MoM) for October should be released at 0.2% from 0.1% previously, but a big risk for the equity market and maybe a boost for Treasuries, especially the 2 – 5-year issues will be weak retail sales data.

Core Retail Sales (MoM) for October should slump to just 0.2% from 1.0% in September and the headline Retail Sales (MoM) figure for October is expected to be just 0.1% from 1.6% before.

Thursday at 09:30 GMT will see the UK release its October Retail Sales (MoM) with a tip back into positive territory expected at 0.1%, up from -0.8% in September. Eurozone CPI will hold at 1.4% and more pressure may befall equities as the Philadelphia Fed Manufacturing Index for November is released at 13:30 GMT with a decline to 24.1 from 27.9 on the cards.

Mark Carney will speak on Thursday at 09:00 and the week is rounded out on Friday with more commentary from Mario Draghi of the ECB at 08:30

Have a great week!

Written by  Stephen Pope, LAT Senior Lecturer.

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