March 20, 2017

Markets Today: Back in the U.S.A.

R.I.P. Chuck Berry. And R.I.P. anti-protectionism, after the weekend G20 meeting communique omitted reference to avoiding protectionism, reflecting the new reality of the USA’s position

R.I.P. Chuck Berry. And R.I.P. anti-protectionism, after the weekend G20 meeting communique omitted reference to avoiding protectionism, reflecting the new reality of the USA’s position. This turns the spotlight firmly on the formulation of U.S. trade policy in coming weeks. It risks upsetting currently benign global risk sentiment.

No dramas in Friday’s offshore markets, which saw US equity indices closed little change but on the week while US yields leaked a bit lower and the dollar fell back to its lowest levels since November 11, two days after Trump’s election victory. The BBDXY dollar index is now 61.8% back from the level from which it started to rally on the Trump news, so a fairly significant technical level.

Looking back at the week just gone, the lower dollar and lower bond yields suggests diminishing faith in Trump being able to deliver any sort of net fiscal stimulus in the coming year while equities apparently still travel in hope.

Perhaps it’s that the latter still have the prospects of deregulation, be it in the financial, energy or airlines sectors, to look forward to, relevant for equities but less so for bonds or the dollar. Who knows, but for now we at least need to see the proposed tax side of Trump’s Budget agenda before we can from any sort of reasoned opinion on the possible fiscal policy landscape (unlikely before May).

US data was pretty good on Friday – manufacturing output up 0.5% with favourable upwards revisions, while the University of Michigan’s consumer sentiment index rose. Yet inflation expectations in the latter fell back, and the Fed’s Labour Conditions Index shows no signs of tightening. So nothing to support the view the next Fed move will come as early as June.

In FX, both the narrow DXY and broader BBDXY finished marginally lower, DXY -0.06% to be 0.9% down on the week, BBDXY -0.13% and 1.3% lower on the week. USD/JPY lost the most and consistent with its high-beta status vis-a-vis US Treasuries, -0.54% to Y112.70, followed by NZD which added back 0.43% to 0.7017 and AUD/USD, _0.34% up on the day to 0.7704.

So JPY aside, it’s the commodity currencies showing the biggest swings in relation to overall US dollar volatility (alongside commodity prices themselves). GBP took a hit – from which it later recovered – on a Bloomberg story saying EU officials are ruling out any discussions with U.K. Prime Minister Theresa May over a post-Brexit trade deal until she agrees to settle Britain’s financial commitments to the bloc (that previous reports have suggested could be as high as €60bn).

US stocks saw the S&P close 0.13% higher at 2378.25 and 0.2% higher on the week. Utilities, telecoms, materials and industrials were the main winners Friday and energy, consumer staples, health care and financial the fallers – the latter by just over 1%. The Dow was -0.1% and the NASDAQ flat. The VIX was little changed at 11.28 0.38 lower on the week.

In rates 2 year Treasuries finished 1.6bps lower at 1.318% (-3.7bps on the week); 5s lost 3.2bps to 2.019% (-8.3bps on the week); 10s -4.0bps to 2.501% (-7.4bps w/w).

In commodities, gold added $3.0 to $1230.2 (+$29 on the week). Oil was unchanged for both WTI and Brent at $48.78 and $51.76 respectively and both are marginally up on the week. Iron ore lost 30 cents to $92.34 but is $5.62 or 6.5% up on the week.  Steaming coal added 20 cents to $81.30 to be +$2.55 on the week but coking coal lost 50 cents to $158.25 and is $3 lower on the week

Coming Up

The US insistence at G20 on dropping reference to avoiding protectionism makes the threat of exactly that very real.  This should be the main early-week talking point, and threatens to get the week off to a less risk-friendly start. If so, commodity currencies in particular are at risk of suffering somewhat, most obviously AUD/JPY and NZD/JPY during our time zones.

After the action-packed events week last week, the calendar is a lot quieter this week and is hardly inspirational.  Fed speakers come thick and fast though, with no fewer than nine of them scheduled to speak and spreads though the week, including Janet Yellen on Thursday (but who will surely not enlighten us any more than she did at last week’s post-FOMC press conference).

The RBNZ hands down its latest decision on Thursday, but having been at pains to convince markets it thinks it will be on hold for a couple of years, it is not going to be changing rates this week.   Minutes of the RBA’s March meeting are on Tuesday will be of interest given their evident scaling up of concerns regarding household debt and comments from assistant Governor Michele Bullock last week suggesting RBA support for further macro-prudential measures. Luci Ellis, the RBA housing market supremo, speaks on Monday, so that is if definite interest. RBA deputy Governor Guy Debelle speaks at an FX conference in Singapore on Wednesday and Sydney on Thursday, presumably on the FX code of conduct.

In what is a very light week for data, the highlights looks like being the flash Eurozone PMIs and US durable goods orders, both on Friday.


On global stock markets, the S&P 500 was -0.13%. Bond markets saw US 10-years -3.97bp to 2.50%. In commodities, Brent crude oil +0.04% to $51.76, gold+0.3% to $1,230, iron ore -0.3% to $92.34, steam coal +0.2% to $81.30, met.coal -0.3% to $158.25. AUD is at 7704 and the range since yesterday 5pm Sydney time is 0.7664 to 0.7818.

For full analysis, download report or listen to The Morning Call Podcast

For further FX, Interest rate and Commodities information visit