Atop a busy week of economic releases, a number of other major developments, particularly on the global stage, are shaping market sentiment. Confirmation of the US-Sino trade accord has calmed the markets’ worst fears and fostered a more risk-taking attitude. The US dollar is riding high on positive sentiment. Predictably, this move has created a strong upward pressure on the Japanese yen (JPY). The latest UK Labour Market Statistics, March 1998, released 15 April. Unemployment remains at a low 4.5%. The employment change figure disappointed even market expectations, increasing concern about the UK economy’s ability to generate sufficient new jobs.
Second, investors are awaiting the release of the preliminary May Purchasing Managers’ Index (PMI) figures. These crucial data points will soon be released for Japan, France, Germany, the Euro Zone, the UK and the US. Germany’s Ifo indicators for their early look at economic performance. At the same time, the UK’s CBI orders indicator for manufacturing will provide further clues. Back in the US, next week gives us another look at the weekly initial jobless claims figure. Analysts will be looking to this data very closely for further signals on the health of the labor market.
US-Sino Trade Deal and Its Impact
The recent US-Sino trade deal has turned the market dynamics upside down. It has eased the great doomsday dark that was hanging over the markets, weighing down investor mood. Consequently, the US dollar has witnessed a short-term boost, rode the wave of better overall market conditions. The deal’s good news vibes are likely to foster a global risk-on environment with an ambiguous effect on currencies, favoring some and penalizing others.
The JPY has historically been considered a safe haven asset, something that analysts point out. They want it to withstand volatility given the context of these new, shifting sands.
“Despite financial data seldomly tend to be major market movers for JPY, we note that the coming week is packed with high impact financial releases with the crown being Japan’s CPI rates for April on Friday. Until then we expect JPY’s status as a safe haven to be the key driver behind the Japanese currency’s direction.” – Analyst’s opinion (JPY)
Improved market sentiment, following upbeat economic indicators both here and abroad, can continue to underlie the mood for riskier assets like the AUD. Ford | Reuters Analysts expect this wave of optimism to persist. If it can, the AUD might begin to appreciate through the roof as it gets seen as a commodity currency.
“On a fundamental level, we note that the improvement of the market sentiment created by the US-Sino trade deal may have provided some support for the AUD, given also the market’s perception of AUD as a riskier asset, as it’s a commodity currency. Hence should we see the market sentiment improving further, AUD may benefit.” – Analyst’s opinion (AUD)
UK Employment Data Raises Concerns
The UK’s new employment figures paint a very different picture. While the unemployment rate held steady at 4.5%, indicating stability in job availability, the employment change figure dropped significantly beyond market expectations. This fall raises fears about the ability of the UK economy to generate alternative employment. In this volatile economic climate, such concerns become amplified.
Analysts are already busily calculating the impact of a future US-UK trade deal. They’re finding out that it might have a bigger sticker shock than they expected. The UK economy is not in good shape. This major weakness would spell trouble for future job creation as well as future tough negotiations to seed economic growth.
In the shadow of these positive developments, analysts are still wary when it comes to making future UK economic projections.
“We see the case for the Loonie to get some support should the market sentiment improve further, or if the US-Canadian trading relationships improve further, or even if oil prices jump back up, yet a possible slowdown of Canada’s CPI rates for April may weigh on the Loonie as it may intensify the market’s expectations the BoC to cut rates in its next meeting.” – Analyst’s opinion (CAD)
Upcoming Economic Releases and Their Implications
Investors are getting ready for a week to come loaded with critical economic data releases. First, they’ll take a look at 5 important figures that may define market trends. The preliminary PMI figures for May will be released across major economies, offering insights into business activity and economic health.
Today, Germany’s Ifo indicators for May. At the same time, the UK’s CBI indicator for industrial order trends will be released. Together, these indicators will play an important role in understanding economic momentum in Europe, which could positively or negatively affect currency valuations.
On the domestic front, the US weekly initial jobless claims figure will provide updated insight into labor market conditions. This one data point should help us better understand what’s really happening with employment in the United States. Policy analysts will be watching this data very closely to figure out what it might mean for future Federal Reserve policy making decisions.
In the spirit of these rises, bulls will wait on the sidelines for the publication of US CPI rates for April. At the headline level, experts are anticipating little more than a minor cooling in the rates. At the same time, they will continue to remain flat at the core level. Cutting through the headline noise, inflation expectations continued a much welcomed return to stability—a key factor in future monetary policy decisions.