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Fundamental Analysis 16.03.2018 – Market Outlook

Market Recap

USD rose as the market absorbed comments from the new head of the National Economic Council, Larry Kudlow, favoring a “sound, stable dollar.” This is in contrast to comments from US Treasury Secretary Steven Mnuchin some time ago to the effect that a weaker dollar would help US trade and therefore wouldn’t be something to be concerned about. “A great country needs a strong currency," Kudlow said on Wednesday 14th of March 2018.

The dollar is also getting a boost from higher US yields at the short end of the yield curve, where rates have been moving up due to considerable issuance in that sector. As you can see from the graph, US 2-year Treasury yields have risen more over the last week than all the other G10 currencies except for NOK.

However, it is noticeable that the worst-performing currencies were the commodity currencies. These are getting hit in anticipation that the US will target China more directly with a variety of specific trade restrictions, which could dampen Chinese demand for metals and other commodities. 

Today’s market

The UK Conservative Party begins a two-day forum today. A number of Cabinet members will speak.   

Canadian manufacturing sales are expected to decline at a faster pace than in the previous month. Exports were down 2.1% during the month. This could be negative for CAD.

There are a number of US indicators coming out today. While they are all important indicators for the US economy, none is particularly closely correlated with the subsequent movement of USD. Thus the thing to watch is probably not what any one particular does, but rather how all of them together perform. They are all expected to show the US economy remaining in good shape, so they could be taken as a whole to be positive for the dollar.

US housing starts and building permits were relatively strong in December 2017, an exception to the generally weak housing data, but some reversion is expected for January 2018. Starts in December 2017 hit the highest level since October 2016, while permits were the highest since 2007. It’s no surprise that both should fall back a bit.  As they’re forecast to remain within the general uptrend, this should be no cause for concern. Housing indicators are not that market-affecting for USD. This could be positive for USD.

US industrial production is a major indicator of economic activity, but it too doesn’t have that good a correlation with the subsequent movement of the dollar. This month’s figure is expected to rebound from the previous month’s decline (February 2018), as suggested by the big rise in factory hours worked during the month (the largest monthly increase since early 2014). The figure should return almost to trend after the unexpected decline, which could be positive for USD.

The Job Openings and Labor Turnover Survey (JOLTS) figure on job openings is also not a major market-mover. The figure is expected to show an increase in job openings this month (March 2018) back to the average level of Q4 last year (5905k, vs the consensus forecast of 5900k). That would suggest at least some stability in the demand for labor, which should be positive for the USD. 

Finally, the University of Michigan consumer sentiment index is forecast to fall. Given its relatively high level – October 2017 was the highest level since before the crash, and it hasn’t come down from there – staying around here could be perceived as a good sign for the economy. This could be positive for USD.

The Fundamental Analysis are provided by Marshall Gittler, an external service provider of an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.













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