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Market panorama. 21 July 2017

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I. Market focus:

21/07/2017

The final session of the week began with the weakening of the Australian dollar, which came under pressure after the comments of the Reserve Bank of Australia (RBA) deputy governor Guy Debelle. The official noted that the Australian central bank would not raise rates as some other central banks did, including the Fed and the Bank of Canada (BoC). In addition, he said that appreciating exchange rate is not welcome in the RBA. The comments of the RBA deputy governor provoked the correction of the Australian dollar after a two-month growth, while the upward medium-term trend of the Australian currency, which is based on some improvement in macroeconomic data, remains in force.

Today's session will not be very busy with macroeconomic data and reports. The key event on Friday will be the Canadian statistics on inflation and retail sales (12:30 GMT). The average forecasts suggest the growth pace of these indicators slowed in the last reporting period. Weaker data may provoke a correction of the Canadian dollar, which strengthened over the past three months by more than 8% against the U.S. dollar.

The stock market participants’ attention is expected to be on the quarterly results of the companies as earnings report season is heating up in the U.S. Today, the main reports will be Q2 earnings of General Electric (GE), Honeywell (HON) and Schlumberger (SLB).


II. The market highlights are:

  • The Federal Reserve Bank of Philadelphia announced Thursday its index of current manufacturing activity in the region decreased to 19.5 this month from a reading of 27.6 in June. The July reading was below economists’ forecast for a reading of 24 and the lowest since November. The details of the report remained positive but fell from their readings in June. The shipments index fell 16.3 points (to 12.2), while the new orders index tumbled 23.8 points (to 2.1). Both the delivery times (7.4; -6.5 points m-o-m) and unfilled orders (7.2; -6.8 points m-o-m) were positive for the ninth consecutive month, suggesting longer delivery times and increases in unfilled orders. The employment indexes (10.9; -5.2 points m-o-m) was positive for eight consecutive months, while the average workweek index (3.8; -16.7 points) was positive for nine consecutive months.

  • The data from the Labor Department revealed Thursday the number of applications for unemployment benefits fell more than expected last week, continuing to point to a tightening labor market. According to the report, the initial claims for unemployment benefits declined by 15,000 to a seasonally adjusted 233,000 for the week ended July 15. That was the lowest level in nearly five months. Economists had expected 245,000 new claims last week. Claims for the prior week were revised upwardly to 248,000 from the initial estimate of 247,000. Meanwhile, the four-week moving average of claims fell by 2,250 to 243,750 last week. It was the 124th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.


III. Market Situation
Currency Market
The currency pair EUR/USD consolidated near the opening level, as investors took a breath after yesterday's rally in the pair, which pushed it to the highest level since August 24, 2015. Since early April, the euro has risen by about 10% amid a decline in political and economic concerns in the Eurozone, and now some experts believe that it's time to resume sales. Recall, yesterday's growth of the pair was caused by the announcement of the ECB President Draghi, as well as resumed sales in the American currency after Bloomberg reports that Justice Department special counsel Robert Mueller was examining a broad range of transactions involving Trump’s businesses in Russia probe. This announcement has increased concerns whether the presidential administration could implement tax cuts and other pro-business policies amid the political tumult. As for Draghi, he said that the ECB would discuss the next stage in its QE program in the autumn. He also noted that the Eurozone’s economy “are finally experiencing a robust recovery where we only have to wait for wages and prices to follow course to our objective.” With an empty economic calendar ahead, investors will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.1713 (high of August 24, 2015). Support level - $1.1371 (low of July 13).

The currency pair GBP/USD traded almost unchanged, due to the lack of new catalysts. The growth of the pound was hampered by new concerns over the Brexit agreement, which arose after the statement of Britain's international trade secretary Liam Fox, who said that the UK can “survive” without a free trade deal with the EU after Brexit. His position contrasts with that of UK Chancellor Philip Hammond, who recently said that failure to secure a post-Brexit trade deal would be a “very, very bad outcome” for Britain. The pound was also impacted by yesterday's rally in the currency pair EUR/GBP, triggered by ECB Draghi's comments. With an almost empty economic calendar in the UK ahead, investors will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3125 (high of July 18). Support level - $1.2792 (low of June 28).

The currency pair AUD/USD fell significantly, updating yesterday's low, weighed by the comments of the Reserve Bank of Australia (RBA) deputy governor Guy Debelle. The official noted that the Australian central bank would not raise rates as some other central banks did, including the Fed and the Bank of Canada (BoC). He stressed that "No significance should be read into the fact the neutral rate was discussed at this particular meeting." In addition, Debelle said that appreciating exchange rate is not welcome in the RBA. "While an easier monetary policy elsewhere in the world should lead to faster growth in the world economy, which is good for the Australian economy, an appreciating exchange rate works against this," he said. Resistance level - AUDD0.8010 (high of May 19, 2015). Support level - AUD0.7786 (low of July 18).

The currency pair USD/JPY traded near the opening level, as investors awaited new catalysts. Recall, the pair fell sharply yesterday, reaching its low of June 27, as the demand for safe-haven assets increased in response to news related to the U.S. president. Bloomberg reported that Justice Department special counsel Robert Mueller was examining a broad range of transactions involving Trump’s businesses in Russia probe. This announcement has increased concerns whether the presidential administration would be able to implement tax cuts and other pro-business policies amid the political tumult. Resistance level - Y113.56 (high of July 14). Support level - Y110.94 (low of June 22).


Stock Market

Index

Value

Change

S&P

2,473.45

-0.02%

Dow

21,611.78

-0.13%

NASDAQ

6,390.00

+0.08%

Nikkei

20,099.75

-0.22%

Hang Seng

26,706.09

-0.13%

Shanghai

3,238.16

-0.21%

S&P/ASX

5,722.84

-0.67%


U.S. stock indexes closed mixed on Thursday amid a slew of earnings reports from the U.S. companies and announcement that U.S. special counsel Robert Mueller is expanding his investigation of President Donald Trump to examine his financial dealings. On the macroeconomic front, the data from the Labor Department revealed the number of applications for unemployment benefits fell more than expected last week, continuing to point to a tightening labor market. According to the report, the initial claims for unemployment benefits declined by 15,000 to a seasonally adjusted 233,000 for the week ended July 15. That was the lowest level in nearly five months. Economists had expected 245,000 new claims last week. It was the 124th straight week that claims remained below the 300,000 threshold, the longest streak since 1970. The Federal Reserve Bank of Philadelphia announced Thursday its index of current manufacturing activity in the region decreased to 19.5 this month from a reading of 27.6 in June. The July reading was below economists’ forecast for a reading of 24 and the lowest since November. The details of the report remained positive but fell from their readings in June.

Asian stock indexes closed lower on Friday, correcting after the recent surge. Additional pressure was provided by news the  U.S. special counsel Robert Mueller is expanding his investigation of President Donald Trump to examine his financial dealings. The Japanese stock benchmark fell as the yen strengthened against the U.S. dollar, putting pressure on the Japanese export-oriented companies.

European stock indexes are expected to trade mixed in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.26% (0 basis points)
Yields of German 10-year bonds hold at 0.53% (0 basis points)
Yields of UK 10-year gilts hold at 1.20% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in August settled at $46.91 (-0.02%). The crude oil prices held near the opening level after yesterday’s decrease. Market participants are awaiting weekly data on the U.S. oil rig count from Baker Hughes.

Gold traded at $1246.50 (+0.17%). Gold prices rose due to continuing sales in the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, dropped by 0.06 percent to 94.25. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.


IV. The most important news that are expected (time GMT0)


08:30

United Kingdom

PSNB

12:30

Canada

Retail Sales

12:30

Canada

Retail Sales ex Autos

12:30

Canada

Consumer price index

12:30

Canada

Bank of Canada Consumer Price Core Index

17:00

U.S.

Baker Hughes Oil Rig Count


Market Focus

  • The Bank of Japan decided by a 7-2 majority vote to hold the interest rate at -0.10%
  • Earnings Season in U.S.: Major Reports of the Week
  • U.S. commercial crude oil inventories decreased by 4.7 million barrels from the previous week
  • Australian unemployment rate stable at 5.6% in June
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