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Market panorama. 21 April 2017

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I. Market focus:

21/04/2017

The market focus is on the presidential elections in France, the first round of which will be held on Sunday. According to the latest polls, the following four candidates have real chances to advance to a second-round, which is scheduled for May 7:

-  Emmanuel Macron, leader of the political movement “En Marche!” (“Forward!”). Macron advocates for the EU and its further integration;

- Marine Le Pen, leader of France's far right National Front party. Le Pen advocates for protectionism, rejection of the euro currency, suspension of the Schengen agreement and withdrawal from the EU;

- François Fillon, the Republican party's representative. Fillon advocates large-scale economic reforms, lifting economic sanctions against Russia and increased monitoring of Muslims;

- Jean-Luc Mélenchon, leader of "La France Insoumise" (“France Unbowed”) movement. Mélenchon advocates radical changes in the political system, threatens to withdraw France from the EU and supports France's withdrawal from NATO).

Strong lead of Macron in the first round of France's presidential election will have a positive impact on the dynamics of the euro, while strong positions of the others are likely to impact negatively the single currency and not only. Voting will end at 19:00 GMT on Sunday, and the first exit polls will be made public an hour later.

In the macroeconomic front, the main focus on Friday will be on the preliminary data on PMIs, statistics on retail sales in the UK (at 08:30 GMT), as well as data on existing home sales in the U.S. (at 14:00 GMT). At 12:30 GMT, attention should be paid to the statistics on inflation in Canada.

The stock market’s focus will be on quarterly reports of General Electric (GE), Honeywell (HON) and Visa (V).


II. The market highlights are:

  • The Federal Reserve Bank of Philadelphia announced on Thursday its index for current manufacturing activity in the region decreased to to 22 this month from from a reading of 32.8 in March. The April reading was below economists’ forecast for a reading of 25 and pointed to the expansion in manufacturing activity but at the slowest pace in four months. The details of the report recorded mainly declines from their readings in March. The current new orders and shipments indexes remained at high readings but fell 11.2 points and 9.5 points, to 38.6 and 23.4 respectively. The prices paid measure dropped 7 points to 33.7, while the prices received index decreased 4 points but remains positive at 16.6. The current employment index, however, improved slightly (by 2.4 points to 19.9) and continued to suggest expanding employment in the manufacturing sector. Inventories rose 6 points to 17.8.

  • The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits rose slightly more than expected last week but continued to point to a tightening labor market. According to the report, the initial claims for unemployment benefits grew by 10,000 to a seasonally adjusted 244,000 for the week ended April 15. Economists had expected 242,000 new claims last week. Claims for the prior week were unrevised at 234,000. Meanwhile, the four-week moving average of claims fell by 4,250 to 243,000 last week. It was the 111h straight week that claims remained below the 300,000 threshold, the longest streak since 1970.

  • The Bank of England (BoE) governor Mark Carney said Thursday that he thinks the UK’s financial institutions are well prepared for early general election unexpectedly called by the British Prime Minister this week. "I would make a distinction between last year's referendum, which was a binary decision for which markets and institutions were potentially not prepared... and the normal political process, which is what we're seeing happening in the UK and for which institutions are well prepared," Carney noted.

  • The U.S. Treasury Secretary Steven Mnuchin said Thursday that the White House plans to release a major tax reform plan "very soon", regardless of the outcome of a healthcare overhaul bill. "Whether health care gets done or health care doesn't get done, we're going to get tax reform done," Mnuchin said. In terms of timing, he said he hopes passing a tax overhaul will not "take till the end of the year."

  • IHS Markit announced on Friday that Japan’s preliminary Manufacturing Purchasing Managers' Index (PMI) increased to 52.8 in April from 52.6 in March. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. Commenting on the Japanese Manufacturing PMI survey data, Paul Smith, Senior Economist at IHS Markit, which compiles the survey, said:“Driven by firmer external demand, the sector was underpinned by a stronger export performance in April, with new export orders rising at a rate amongst the best seen in the past three years. Companies are also adding to their workforces at a rate that matched January’s 34-month peak, but price pressures continue to mount with input costs and output charges rising at stronger rates.” According to the report, April’s PMI data results were again consistent with production rising at a quarterly rate of around 2 percent.


III. Market Situation
Currency Market
The currency pair EUR/USD consolidated near the opening level of the session, as investors took a breath after yesterday’s sharp decline, and remained cautious ahead of presidential elections in France, the first round of which will be held on Sunday. Recall, yesterday's fall was triggered by the comments by the U.S. Treasury Secretary Steven Mnuchin, saying that the White House plans to release a major tax reform plan "very soon", regardless of the outcome of a healthcare overhaul bill. "Whether health care gets done or health care doesn't get done, we're going to get tax reform done," Mnuchin said. In terms of timing, he said he hopes passing a tax overhaul will not "take till the end of the year." As for the elections in France, it seems that the markets have already priced in Macron's victory, as the spread spread between French and German bonds narrowed.  The most recent OpinionWay poll showed that centrist candidate Emmanuel Macron to get 23 percent of the votes in the first round of French election, with Marine Le Pen gaining 22 percent, François Fillon 20 percent and Jean-Luc Melenchon 19 percent. Meanwhile, the latest Elabe Poll showed Marcon in lead with 24 percent support, followed by a 21.5 percent support for Le Pen, while Fillon stands at 20 percent and Melenchon is at 19.5 percent. According to  Harris Interactive poll, Macron is to get 25 percent in first round of French presidential election , Le Pen 22 percent, Fillon and Melenchon 19 percent each. Resistance level – $1.0826 (high of March 29). Support level – $1.0568 (low of March 10).

The currency pair GBP/USD fell slightly at the beginning of the session, but then recovered to the opening level. Market participants are awaiting UK’s data on retail sale. After the Brexit referendum in June last year, there appeared fears that the uncertainty associated with the negotiation process could cause the British economy to dip into a mild recession. Nevertheless, economic growth in the United Kingdom remains positive, partly due to strong consumer spending. However, growth in retail spending has slowed recently. If the retail sales volume will decrease by 0.2 percent m-o-m in March, in-line with economists’ consensus estimate, real retail spending will fall by more than 1 percent in the first quarter. Although real spendings on services were likely to remain positive in the first quarter, a moderate decline in real retail sales indicates that the overall consumer spending has slowed. Resistance level - $1.2945 (high of October 3, 2016). Support level - $1.2478 (low of April 12).

The currency pair AUD/USD traded slightly higher, near yesterday's high, supported by an increase in prices for some commodities. Meanwhile, some investors have reduced their positions in the U.S. dollar in recent weeks, as the failure to pass the healthcare reform bill in March put questions over Trump's ability to implement his other pro-growth agenda including tax reforms, infrastructure spending and deregulation policies. Investors’ focus also is on latest Reuters poll, which showed analysts  estimated Australia’s GDP the would grow 2.6 percent y-o-y in 2017 and 2.8 percent y-o-y in 2018, unchanged from forecasts in the previous poll in January. At the same time,  analysts forecast inflation will pick up only slowly to 2.1 percent this year and 2.2 percent next year. Resistance level - AUD0.7608  (high of April 17). Support level - AUD0.7471 (low of April 11-12).

The currency pair USD/JPY traded near the opening level, as investors awaited new catalysts.  The pair performance was also influenced by data from Japan. IHS Markit announced that Japan’s preliminary Manufacturing Purchasing Managers' Index (PMI) increased to 52.8 in April from 52.6 in March. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. Commenting on the Japanese Manufacturing PMI survey data, Paul Smith, Senior Economist at IHS Markit, which compiles the survey, said:“Driven by firmer external demand, the sector was underpinned by a stronger export performance in April, with new export orders rising at a rate amongst the best seen in the past three years. Companies are also adding to their workforces at a rate that matched January’s 34-month peak, but price pressures continue to mount with input costs and output charges rising at stronger rates.” Experts note investors’ major focus is on two significant political events - the presidential elections in France, the first round of which is to be held on Sunday, and the celebration of Military Foundation Day in North Korea, which is due on Tuesday. The market is not yet trying to test the strength of a support at Y108 level, awaiting for the outcomes of these events. Resistance level - Y109.87 (high of April 12). Support level - Y108.14 (low of November 17, 2016).


Stock Market

Index

Value

Change

S&P

2,355.84

+0.76%

Dow

20,578.71

+0.85%

NASDAQ

5,916.78

+0.92%

Nikkei

18,620.75

+1.03%

Hang Seng

24,013.53

-0.18%

Shanghai

3,173.15

+0.03%


U.S. stock indexes closed higher on Thursday as a set of solid earnings led by American Express (AXP) pushed equities higher. Additional support was provided by comments from the U.S. Treasury Secretary Steven Mnuchin, saying that the White House plans to release a major tax reform plan "very soon", regardless of the outcome of a healthcare overhaul bill. "Whether health care gets done or health care doesn't get done, we're going to get tax reform done," Mnuchin said. In terms of timing, he said he hopes passing a tax overhaul will not "take till the end of the year. In the macroeconomic front, the data from the Labor Department revealed the number of applications for unemployment benefits rose slightly more than expected last week but continued to point to a tightening labor market. According to the report, the initial claims for unemployment benefits grew by 10,000 to a seasonally adjusted 244,000 for the week ended April 15. Economists had expected 242,000 new claims last week. Claims for the prior week were unrevised at 234,000. It was the 111h straight week that claims remained below the 300,000 threshold, the longest streak since 1970. The Federal Reserve Bank of Philadelphia announced its index for current manufacturing activity in the region decreased to to 22 this month from from a reading of 32.8 in March. The April reading was below economists’ forecast for a reading of 25 and pointed to the expansion in manufacturing activity but at the slowest pace in four months.

Asian stock indexes closed mainly higher, following  rally in the U.S. amid solid corporate earnings and optimism for a U.S. tax overhaul. The Japanese equity benchmark gained more than 1 percent, reaching its highest closing level since April 11,supported by weaker yen and preliminary Manufacturing PMI data from Japan.

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


Bond Market
Yields of US 10-year notes hold at 2.24% (0 basis points)
Yields of German 10-year bonds hold at 0.23% (-1 basis points)
Yields of UK 10-year gilts hold at 1.07% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in June settled at $50.76 (+0.10%). The crude oil prices rose slightly, reacting to yesterday's statements regarding extension of oil production cut deal. Saudi Energy Minister Khalid al-Falih stated yesterday that preliminary deal to extend cuts is near agreement. Omani Oil and Gas Minister Mohammad bin Hamad al-Rumhy said a "quite high" number of producers favoured extending the supply restraint agreement. Market participants are awaiting weekly data on the U.S. oil rig count from Baker Hughes.

Gold traded at $1279.90 (-0.15%). Gold prices fell due to broad weakening of the U.S. dollar and concerns over North Korea tensions and upcoming presidential election in France. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.05 percent to 99.82. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies. Further decline of gold prices is suppressed due to concerns over North Korea tensions and upcoming presidential election in France.


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


07:00

France

Manufacturing PMI (preliminary)

07:00

France

Services PMI (preliminary)

07:30

Germany

Manufacturing PMI (preliminary)

07:30

Germany

Services PMI (preliminary)

08:00

Eurozone

Manufacturing PMI (preliminary)

08:00

Eurozone

Services PMI (preliminary)

08:30

United Kingdom

Retail Sales

11:45

United Kingdom

MPC Member Saunders Speaks

12:30

Canada

Consumer Price Index

12:30

Canada

Bank of Canada Consumer Price Index Core

13:30

U.S.

FOMC Member Kashkari Speaks

13:45

U.S.

Manufacturing PMI (preliminary)

13:45

U.S.

Services PMI (preliminary)

14:00

U.S.

Existing Home Sales

17:00

U.S.

Baker Hughes Oil Rig Count


Market Focus

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