Market Reviews
European Session – Sterling rally holds; US adds 223k jobs in April
Posted on May 08, 2015 02:22 pm GMT
Sterling dominated the European session as the surprise win for the Conservatives in the UK elections took centre stage. Markets were clearly pleased with the outright majority win of the Conservatives, as the pound jumped by around 1% against the dollar and by around 1.5% against the euro and the yen. UK stocks were also boosted with the main FTSE-100 share index up by over 2% in afternoon trade.
Negative UK trade data did little to dent the pound’s strength, which showed that the UK’s deficit in goods in March was £10.1 billion, versus economists’ forecasts that it would fall to £9.8 billion. The overall trade deficit in goods and services did improve however on the previous month, falling to £2.8 billion, versus £3.3 billion in February. German trade data also disappointed as imports rose faster than exports and the trade balance stood at 19.3 billion euros in March, a small improvement on February’s figure. Exports were up 1.2% on an adjusted basis, while imports were up by 1.4% on the month. More worrying though was the German industrial output data which fell by 0.5% on the month, compared to forecasts that it would rise by 0.4%.
The euro was broadly weaker against most currencies. It was struggling to hold on to the 1.12 level against the dollar, having dropped to as low as 1.1178 earlier in the day but later recovering to 1.1207 in late European trade. Against the pound, the euro managed to bounce back from day’s low of 0.7224 to trade around 0.7287 in late European session. The outcome of the Eurogroup meeting of finance ministers on Monday is likely to determine the euro’s direction at the beginning of next week.
The dollar meanwhile was trying to claw back up the 120 level against the yen, having touched 120.227 earlier in the day, but it was still up on the day and was last trading at 119.830 yen. Against the pound, it fell to 2-month lows as the pound rallied after the election results. Cable hit a day’s high of 1.5521 but later retreated to 1.5415 in late European session.
US employment data did not have a major impact on the greenback, which initially rose but later eased again, as it mostly came within expectations. Non-farm payrolls was 223k in April, slightly below forecasts of 224k according to a Reuters poll. The big surprise came with a revision to March’s figure, which was revised down to 85k from 126k. The unemployment rate came in as expected at 5.4%, down from 5.5% the previous month. Further improvement of the labor market was evident in the labor force participation rate, which improved to 62.8% in April from 62.7% in March. But average earnings remain weak, rising by just 0.1% in April, compared to expectations that it would rise by 0.2%.
Canadian unemployment data was also positive. The unemployment rate came in at 6.8% in April, which was unchanged on the month but below expectation that it would rise to 6.9%. The Canadian dollar strengthened slightly on the news, with the greenback falling to around 1.21 in early US trading.
There was no major data for Asian currencies today but Chinese CPI figures out tomorrow should underline the scope for further rate cuts if it comes in 1.6% as expected, which is comfortably below the government’s target of 3%.
Asian Session – Sterling rallies as Tories win UK election
Posted on May 08, 2015 07:22 am GMT
The pound was the main winner of Friday’s Asian Session, as it rallied following the announcement of exit polls that showed Britain’s ruling conservative party winning the UK elections but probably needing the help of a junior partner to form a stable majority government. This was a positive surprise for UK assets, as many analysts were fearful of a more balanced outcome that would result in a deadlock and difficulties in forming a new government. The conservatives are also traditionally seen as more business-friendly and therefore this was a result that pleased the market.
On a more negative note, the win by Conservatives should also result in an in-out referendum on EU membership in two years; something that could create new uncertainty with respect to Britain’s political, financial and trade relationships with the rest of the EU.
The pound rose to as high as 1.5520 against the US dollar and drove euro / pound to as low as 0.7224. The two pairs were last trading around 1.5450 and 0.7240. The market is expected to re-focus on UK economic fundamentals and the Bank of England’s plans for interest rates now that the election is over.
In other news, the Australian dollar was not much moved after the Reserve Bank issued its quarterly monetary policy statement. The statement was perhaps on the dovish side of expectations as the bank kept its options open with respect to future rate cuts in light of a Chinese economic slowdown and weak business investment. The aussie managed to reclaim the 79 cents level to trade as high as 0.7918.
Data out of China were on the weak side as both exports and imports were much worse than expected during March and the country’s trade balance fell as a result. Weak figures out of China could result in additional stimulus from the authorities in order for the 7% growth target to be met.
Outside foreign exchange markets, oil fell, bond yields stabilized after a very volatile Thursday and stocks rose; a reversal of some major themes of the previous days. As a result the US dollar also gained.
Looking ahead, the all-important US nonfarm payrolls number for April and related employment statistics are expected to be the main reference points for the markets. The expectation is that payrolls will rebound to 225 thousand versus a disappointing 126 thousand the previous month. The unemployment rate is expected to dip to 5.4%. Strong figures are likely to support the US dollar, which has been on the receiving end of heavy selling lately as a result of mediocre economic data.
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