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 The dollar rose against a basket of the other major currencies on Friday as the pound remained sharply lower after British Prime Minister Theresa May’s Conservative Party unexpectedly lost its majority in parliament in a national election.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.3% to 97.24 late Friday after touching an almost two-week high of 97.47 earlier.

The index plumbed seven-month lows earlier in the week amid caution ahead of former FBI Director James Comey's testimony and the UK election.

On Thursday, Comey accused President Donald Trump of firing him in a bid to undermine a probe into Russia’s alleged involvement in the U.S. presidential election, but did not say whether he thought the president attempted to obstruct justice.

The pound was sharply lower, with GBP/USD at 1.2746 in late trade, off 1.59% for the day, after tumbling to an eight-week trough of 1.2634 earlier.

The shock UK election result added to political risks surrounding the upcoming Brexit negotiations, due to start on June 19.

Sterling found some support from reports that May was seeking a deal to form a government with support from Northern Ireland’s Democratic Unionist Party, known as the DUP.

The euro was a touch lower against the dollar, with EUR/USD slipping 0.13% to 1.1194 a day after the European Central Bank cut its inflation forecasts, but dropped its guidance that interest rates may be cut again.

The Canadian dollar gained ground against its U.S. counterpart, with USD/CAD down 0.3% to 1.3468 in late trade as upbeat domestic jobs data fueled expectations that the Bank of Canada could raise interest rates sooner than anticipated.

Meanwhile, the Mexican peso rose to almost 10-month highs, with USD/MXN down 0.16% to 18.1684 as higher prices for oil bolstered the currencies of emerging market economies.

In the week ahead, investors will be turning their attention to Wednesday’s Federal Reserve policy meeting, where the central bank is widely expected to deliver its second rate hike so far this year.

Markets will also be watching central bank meetings in the UK, Japan and Switzerland.

Monday, June 12

Financial markets in Australia will be closed for a holiday.

Tuesday, June 13

Australia is to release private sector data on business confidence.

The UK is to publish its monthly inflation report.

The ZEW Institute is to report on German economic sentiment.

The U.S. is to produce data on producer price inflation.

Wednesday, June 14

China is to release data on industrial production and fixed asset investment.

The UK is to publish its monthly employment report.

The U.S. is to produce reports on retail sales and inflation.

The Fed is to announce its latest interest rate decision and will release its latest forecasts for economic growth and interest rates, known as the "dot-plot". Fed Chair Janet Yellen will hold a press conference following the rate announcement.

Thursday, June 15

New Zealand is to release quarterly data on gross domestic product.

Australia is to publish its monthly employment report.

The Swiss National Bank is to announce its Libor rate and publish its latest monetary policy assessment.

The UK is to report on retail sales figures.

The Bank of England is to announce its benchmark interest rate and publish a summary of its meeting, outlining the economic conditions and the factors affecting its policy decision.

Canada is to release data on manufacturing sales.

The U.S. is to release a string of reports, including on jobless claims, industrial production, import prices and manufacturing activity in both New York and Philadelphia.

Friday, June 16

New Zealand is to release data on manufacturing activity.

The Bank of Japan is to announce its benchmark interest rate and publish its policy statement.

The euro zone is to release revised inflation data.

The U.S. is to round up the week with data on building permits, housing starts and consumer sentiment.




Gold prices fell for a third day on Friday as the stronger dollar weighed after British elections failed to deliver a clear majority for Prime Minister Theresa May, sending sterling sharply lower.

Gold for August delivery closed down 0.79% at $1,269.45 on the Comex division of the New York Mercantile Exchange. For the week, the precious metal was down 0.69%, the first weekly percentage decline in five weeks.

The shock UK election result added to political risks surrounding the upcoming Brexit negotiations, due to start on June 19, sending sterling tumbling.

That, along with a drop in the euro, pushed the dollar higher against a basket of the other major currencies.

The U.S. dollar index was up 0.3% to 97.24 late Friday after touching an almost two-week high of 97.47 earlier.

Gold and the dollar typically move in opposite directions, which means if the dollar goes down, gold futures, which are denominated in the U.S. currency, will rise.

The dollar index plumbed seven-month lows earlier in the week amid caution ahead of former FBI Director James Comey's testimony and the UK election.

On Thursday, Comey accused President Donald Trump of firing him in a bid to undermine a probe into Russia’s alleged involvement in the U.S. presidential election, but did not say whether he thought the president attempted to obstruct justice.

Elsewhere in precious metals trading, silver fell 1.46% to $17.15 a troy ounce late Friday.

Meanwhile, copper was up 1.4% to $2.646 a pound and rallied around 3% for the week after severe weather hit some mines in South America and labor issues re-emerged in Indonesia, fuelling fears over supply disruptions.

Platinum rose 0.25% to $940.4 a troy ounce, while palladium put on 1.27% to trade at $857.25 a troy ounce.

In the week ahead, investors will be turning their attention to Wednesday’s Federal Reserve policy meeting, where the central bank is widely expected to deliver its second rate hike so far this year.

Markets will also be watching central bank meetings in the UK, Japan and Switzerland.

Monday, June 12

Financial markets in Australia will be closed for a holiday.

Tuesday, June 13

Australia is to release private sector data on business confidence.

The UK is to publish its monthly inflation report.

The ZEW Institute is to report on German economic sentiment.

The U.S. is to produce data on producer price inflation.

Wednesday, June 14

China is to release data on industrial production and fixed asset investment.

The UK is to publish its monthly employment report.

The U.S. is to produce reports on retail sales and inflation.

The Fed is to announce its latest interest rate decision and will release its latest forecasts for economic growth and interest rates, known as the "dot-plot". Fed Chair Janet Yellen will hold a press conference following the rate announcement.

Thursday, June 15

New Zealand is to release quarterly data on gross domestic product.

Australia is to publish its monthly employment report.

The Swiss National Bank is to announce its Libor rate and publish its latest monetary policy assessment.

The UK is to report on retail sales figures.

The Bank of England is to announce its benchmark interest rate and publish a summary of its meeting, outlining the economic conditions and the factors affecting its policy decision.

Canada is to release data on manufacturing sales.

The U.S. is to release a string of reports, including on jobless claims, industrial production, import prices and manufacturing activity in both New York and Philadelphia.

Friday, June 16

New Zealand is to release data on manufacturing activity.

The Bank of Japan is to announce its benchmark interest rate and publish its policy statement.

The euro zone is to release revised inflation data.

The U.S. is to round up the week with data on building permits, housing starts and consumer sentiment.




Oil futures settled a bit higher on Friday, but prices still suffered their third straight weekly loss as the market weighed rising U.S. drilling and swelling stockpiles against efforts by major producers to cut output to reduce a global glut.

The U.S. West Texas Intermediate crude July contract inched up 19 cents, or around 0.4%, to end at $45.83 a barrel by close of trade Friday. It touched its lowest since May 5 at $45.20 on Thursday.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for August delivery advanced 29 cents to settle at $48.15 a barrel by close of trade, after hitting a daily trough of $47.40, a level not seen since May 5.

For the week, WTI lost $1.83, or about 3.8%, while Brent fell $1.80, or roughly 3.6%. Both have now posted losses three weeks in a row.

Concern that the ongoing rebound in U.S. shale production is derailing efforts by other major producers to rebalance the market remained in focus.

Data from energy services company Baker Hughes showed on Friday that U.S. drillers last week added rigs for the 21st week in a row, the longest such streak on record, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 8 to 741, extending a year-long drilling recovery to the highest level since April 2015.

That came after data on Wednesday showed that U.S. crude stockpiles unexpectedly climbed for the first time in nine weeks.

The increase in U.S. drilling activity and shale production has mostly offset efforts by OPEC and other producers to cut output in a move to prop up the market.

Last month, OPEC and some non-OPEC producers extended a deal to cut 1.8 million barrels per day in supply until March 2018.

So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya and Nigeria, and a relentless increase in U.S. shale oil output.

Elsewhere on Nymex, gasoline futures for July tacked on 0.9 cents, or about 0.7% to end at $1.501 on Friday. It closed down around 4.8% for the week.

July heating oil added 0.8 cents to finish at $1.431 a gallon. For the week, the fuel declined roughly 3.6%.

Natural gas futures for July delivery rose 1.1 cents to settle at $3.039 per million British thermal units. It saw a weekly gain of 1.3%.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Meanwhile, investors will keep an eye out for monthly reports from the Organization of Petroleum Exporting Counties and the International Energy Agency to assess global supply and demand levels.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, June 13

The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.

Later in the day, the American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, June 14

The International Energy Agency will release its monthly report on global oil supply and demand.

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, June 15

The U.S. government is set to produce a weekly report on natural gas supplies in storage.

Friday, June 16

Baker Hughes will release weekly data on the U.S. oil rig count.




In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Inventories decline…and rise again

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- The key objective for OPEC at this point is to drain crude oil inventories around the world, and particularly in the United States.

- The EIA offered a damning projection this week, predicting stock drawdowns of just 200,000 barrels per day on average in 2017, which will be painfully slow and wholly inadequate for correcting imbalances.

- Worse, the EIA sees inventories actually rising once again in 2018.

- The culprit is growing non-OPEC production – that is, surging U.S. shale output but also new supply from places like Canada and Brazil.

- The EIA forecasts Brent prices of $54 per barrel in the third quarter.

- Of course, the prediction that inventories will surge in the second quarter of 2018 is based on the assumption that the OPEC deal will expire. As it stands, that is exactly what will happen, but OPEC could always extend the deal again.

2. EV sales surge

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- The cumulative number of EV sales has surpassed 2 million last year, according to the IEA, up from nearly zero as recently as five years ago.

- Global EV sales jumped by 60 percent in 2016, although they still only make up about 0.2 percent of the auto market.

- China is the undisputed leader right now, accounting for 40 percent of global EV sales, according to the IEA.

- Despite the surge in sales, the EV market is “largely influenced by the policy environment.”

3. Nigeria to add new supply

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- Royal Dutch Shell (NYSE: RDS.A) lifted its force majeure on its Forcados crude oil stream this week, a move that could send a chill through the oil markets.

- Forcados, Nigeria’s largest source of crude oil, has been offline for more than a year after being disrupted by militant attacks. The return of the pipeline and export terminal could see 200,000 to 250,000 bpd added to the global oil market.

- The additional supply is equivalent to about one-fifth of OPEC’s 1.2 mb/d of cuts.

- Nigeria is compliance OPEC’s collective efforts, pushing compliance down to just 66 percent.

4. Iraqi oil exports to U.S. surge

- Saudi Arabia’s new strategy to drain global oil inventories is centered around slashing exports to the U.S.

- But as Saudi backs away from the U.S. market, Iraq is stepping into the void.

- Iraq’s oil exports to the U.S. jumped to the most in five years for the week ending on June 2.

- The U.S. imported 1.14 mb/d of Iraqi oil during that week, nearly quadruple the previous week’s total of just 293,000 bpd.

- One data point does not necessarily point to a trend, but Saudi Arabia’s strategy of draining U.S. inventories will be a struggle if Iraq steps up exports.

5. WTI discount to Brent narrows

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- Brent has consistently traded at a premium to WTI prices, particularly before the U.S. crude oil export ban was lifted in 2015, which trapped U.S. oil.

- But the WTI discount to Brent narrowed in May, from nearly $3 per barrel to less than $2.

- The smaller discount reduces the competitiveness of U.S. exports and leads to more U.S. imports of relatively cheaper oil from abroad (linked to Brent prices).

- The discount could narrow further with Nigeria set to bring new supplies back online.

- The narrowing discount led to a surprise uptick in U.S. inventories, both for crude oil and gasoline. The latest EIA data showed a jump of 3.3 million barrels for crude stocks and also 3.3 million barrels for gasoline inventories.

6. Fracklog is growing

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- The number of drilled but uncompleted wells (DUCs) has increased sharply this year, a sign that drillers are picking up activity, but not completing their wells.

- The DUC backlog has jumped the most in the Permian Basin, rising by more than 30 percent to 1,995 wells.

- In the past, the reason for the rising number of DUCs was because companies were drilling but waiting to complete wells in the hopes of higher prices.

- But these days, the DUC increase is being attributed to bottlenecks. A shortage of fracking crews in West Texas in particular is a source of troubles for the industry.

- The inability to find enough fracking crews could increase costs for oil companies and hobble production growth. In short, the rising number of DUCs could be a sign that the surge in shale production might slow down, or at least be delayed.

7. Gas market finally goes global

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- For decades, there was no such thing as a global gas market. Unlike crude oil, natural gas is traded in very separate regional markets.

- But that has changed with the surge in LNG export capacity and new cheap supplies from places like the U.S. The gas trade is going through a radical transformation, upending longstanding practices.

- LNG has traditionally been traded through long-term contracts with fixed terms based on the price of crude oil. But now, there is a rapidly growing spot market.

- The result is a narrowing of different regional prices, with markets converging close to one prevailing global price.

- LNG is quickly becoming a liquid (no pun intended), well-supplied, global market with prices responsive to changing market conditions rather than fixed terms.

That’s it for this week’s Numbers Report. Thanks for reading, and we’ll see you next week.




HIGHLIGHTS OF THE WEEK

United States

  • International events overshadowed domestic developments this week. Data on job openings and the non-manufacturing sector confirmed last Friday's payroll report of slowing job growth, something that is to be expected at this point in the cycle.
  • The ECB kept its monetary policy broadly unchanged, tilting its forward guidance slightly hawkish given the strong economic performance. However, downward revisions to its inflation forecasts suggests that the ECB is unlikely to join the Fed in tightening monetary policy anytime soon.
  • The UK election has charged a shaky Conservative coalition government with negotiating Brexit. Although the election result serves to weaken the UK's negotiating hand, it increases the likelihood that the UK maintains ties with the EU, favoring an arrangement similar to that between Norway and the EU.

Canada

  • It was a relatively busy week in Canadian markets, with the loonie stumbling on the oil price drop midweek, before regaining some poise on robust economic data.
  • Employment surged in May, with the economy adding 54.5 thousand jobs during the month. The gains were quite broad and all in full-time positions. Wages and hours remained weak but improved from previous months.
  • Housing data pointed to resilience across most Canadian markets and a welcome cool-off in new and existing activity in Ontario. The Bank of Canada's June FSR highlighted a growing concern about both household indebtedness and housing market imbalances, with a sharp correction in home prices in overheated markets flagged as a key risk for financial stability.

UNITED STATES - EUROPE ON THE MIND

Geopolitical events overshadowed domestic developments this week, although as typical of the new normal, financial markets remained relatively calm.

Following last Friday's payrolls report, there was little economic news to stir U.S. risk or fixed income markets ahead of next week's interest rate decision by the FOMC, in which it is widely expected to raise the federal funds rate by 25 bps. Both the job openings, turnover, and layoffs survey (JOLTS) for April and the ISM non-manufacturing survey for May were consistent with the message of slowing job growth from Friday's payrolls report. This shouldn't come as a surprise as employment growth tends to slow as the duration of an economic expansion lengthens.

Perhaps more insightful as to the health of the U.S. labor market are industry anecdotes and job openings data suggesting that the tight labor market is making it tougher for employers to find qualified help. Maybe this will provide the catalyst to ignite wage growth that has been subdued despite a tightening labor market, raising price pressures sufficiently for the FOMC to continue to normalize monetary policy with conviction.

Weak underlying inflation is a phenomenon that has been plaguing many advanced economies for the better part of the last decade, accented by overly optimistic forecasts from inflation-targeting central banks. At this week's monetary policy meeting, the ECB left interest rates and monthly asset purchases unchanged, but tilted its forward guidance slightly more hawkish, a nod to the more balanced risks around the outlook for inflation given the strong economic performance of the Euro Area. Nonetheless, downward revisions to their inflation forecasts were widely interpreted by markets as dovish. A capitulation by the ECB, perhaps, to the fact that despite a rapid absorption of economic slack, underlying price growth will remain subdued over the next few years in the absence of significant wage pressures.

The ECB is right to remain dovish given the downside risks to the Euro Area outlook. Aside from the threat posed by a possible election of the anti-EU/euro M5S in Italy, perhaps a bigger threat to the region's outlook is what may be a messy Brexit negotiation. Overnight we learned that the Conservative government's gamble to ensure a strong majority in the UK parliament for the next four years failed. Instead, it appears that a shaky Conservative coalition government will negotiate exit terms with the EU, a result that only serves to further weaken their negotiating position, while raising policy uncertainty for businesses. On the bright side, this outcome increases the likelihood that the UK will maintain some existing ties with the EU, favoring an arrangement similar to that between Norway and the EU.

Lastly, this Sunday is the first of two rounds of French parliamentary elections. President Macron's En Marche! party, supported by its Democratic Movement ally, is expected to earn a majority, giving the newly elected president a strong mandate to pursue a pro-business reform agenda aimed at improving the long-run growth performance of the French economy. The strength of his mandate will be known after the conclusion of next week's second round ballot, but it appears that this election should deal another strong blow to French populism for the time being.

CANADA - ECONOMIC STARS ALIGNING FOR EARLY-2018 RATE HIKE

It was a relatively busy week in Canadian markets as investors digested fresh labour and housing market data and got an updated view from the Bank of Canada on the stability of the financial system. Equities and the loonie stumbled mid-week on a slump in oil prices related to a growing U.S. supply glut. But, Canadian markets recovered on solid economic numbers that painted a relatively healthy picture of the Canadian economy, and boosted the prospects for an earlier Bank of Canada rate hike. Markets are now pricing a one-third chance of a hike by year-end, with the odds of a move in the first quarter of 2018 better than even.

The renewed enthusiasm for the Canadian economy was highlighted by the strong employment numbers this morning. The Labour Force Survey indicated that 54,500 jobs were created across the country in May, with 77,000 full-time jobs added on the month. The May tally takes the twelve-month tally to 317,000, its fastest pace more than four years. Workers also flocked back into the labour force, which expanded by nearly eighty-thousand after a sizeable decline in the month prior, pushing the jobless rate up a tick to 6.6% in May. While P.E.I. registered the largest relative gain (+1,500), and is now leading the country in job growth at 4.7% y/y, most of the absolute gains were to be had in British Columbia (+12k), Quebec (+15k) and Ontario (+20k). Encouragingly, the job gains were relatively broad based, with manufacturing and most private services showing gains, while finance and construction had another weak month (Chart 1).

Softer finance and construction job numbers are in line with the cooling housing market. The pace of housing starts in May slowed to 194,000 annualized, down 20 thousand on the month and its slowest level in six months. All the weakness was in Ontario, where starts pulled back by 20 thousand after a 16 thousand drop in April (Chart 2), as developers digest the impact of the Fair Housing Plan introduced by the province on April 20th. In a complete reversal of the first-quarter story, the existing home market is also cooling. TREB figures released early this week pointed to a surge in new listings and decline in sales in May. Average transaction price dropped in the month, but this was more of a compositional effect given the skew towards condos. On the other hand, the quality-adjusted index increased slightly on the month, but decelerated to 29% from 31.6% year-on-year.

As outlined in our recent paper, this is a welcome cooloff for the red-hot market. The Bank of Canada's updated Financial System Review highlighted growing concern about both household indebtedness and housing market imbalances, with a sharp correction in home prices in overheated markets flagged as a key risk for financial stability. Other key risks identified include a severe nationwide recession, a sharp increase in long term rates driven by higher global risk premiums, and stress emanating from emerging markets. These risks will remain top of mind for policy makers, but are unlikely to sway the Bank of Canada from proceeding with rate increases. All in all, while we don't expect the Bank to move this year, an early-2018 hike is an increasingly likely scenario provided that economic data remains upbeat.




Global financial markets will be busy with central bank meetings in the week ahead, with policy decisions due in the U.S., U.K, Japan and Switzerland.

Investors will also keep an eye out for Chinese industrial production data amid recent signs of cooling in the world's second largest economy.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. Federal Reserve Rate Decision

The Federal Reserve is widely expected to raise the fed funds target range by a quarter point at the conclusion of its two-day policy meeting at 2:00PM ET (1800GMT) on Wednesday, which would put it in a range between 1.0%-1.25%.

The U.S. central bank will release its latest forecasts for economic growth and interest rates, known as the "dot-plot".

Fed Chair Janet Yellen is to hold what will be a closely-watched press conference 30 minutes after the release of the Fed's statement, as investors look for any hawkish change in tone about the economy or future rate hikes.

Market players will also pay close attention to details of the Fed's plan to reduce its $4.5 trillion balance sheet later this year.

The median Fed policymaker forecast is for two more rate increases by year-end, after already raising its benchmark interest rate once this year, by a quarter percentage point in March.

But a recent run of disappointing U.S. economic data combined with growing uncertainty about the Trump administration's ability to pass tax and healthcare reforms sparked doubtsover the Fed's ability to raise rates as much as it would like before the end of the year.

According to Investing.com’s Fed Rate Monitor Tool, conviction for a move beyond this week's widely expected rate hike has faded, with just 40% of market players expecting another rate increase later this year.

Besides the Fed, this week's calendar also features U.S. data on inflation, retail sales, producer prices, building permits, housing starts, initial jobless claims, industrial production, consumer sentiment as well as surveys on manufacturing conditions in the Philadelphia and New York regions.

2. Bank of England Policy Announcement

The Bank of England will announce its rate decision at 1100GMT (7:00AM ET) on Thursday, with analysts expecting no change in policy.

Market players expect BoE policymakers to strike a cautious tone in the wake of last week's shock parliamentary election results, which denied any party a majority and fomented a sense of political chaos just days before Brexit talks begin.

The BoE said before the election that monetary policy would remain on hold for at least the next few months as it assesses the extent of any consumer slowdown while waiting to see how EU divorce negotiations pan out.

Besides the BoE, traders will focus on monthly inflation, unemployment and retail salesdata for further indications on the continued effect that the Brexit decision is having on the economy.

Investors are also likely to keep an eye out for headlines coming out of London for any new fallout from last week's general elections and how it will impact Brexit negotiations.

3. Bank of Japan Monetary Policy Decision

The Bank of Japan is expected to keep its monetary policy unchanged when it releases its latest rate decision and monetary policy statement at around 0300GMT Friday, as the economy grows modestly despite weak inflation and consumer spending.

The BoJ is seen keeping its short-term policy interest rate at minus 0.1%, while holding the 10-year government bond yield target at around 0%. The central bank is also forecast to keep the net amount of Japanese government bonds it buys annually at around 80 trillion yen.

According to people familiar with the matter, the Japanese central bank is likely to upgrade its economic assessment and signal its growing conviction the recovery is gathering momentum, reinforcing expectations its next move would be to tighten monetary policy.

BOJ Governor Haruhiko Kuroda will hold a press conference afterward to discuss the decision, as market players seek clues on the central bank's exit strategy.

4. SNB Policy Assessment

The Swiss National Bank's quarterly monetary policy assessment is due on Thursday at 0730GMT (3:30AM ET). Most economists expect the central bank’s benchmark interest rate to remain unchanged at -0.75%.

The SNB is also expected to stick to its commitment to foreign currency interventions if necessary, in order to reduce demand for the franc.

SNB Chairman Thomas Jordan recently repeated that the Swiss franc remains “significantly overvalued.”

5. China Industrial Production

The China National Bureau of Statistics is to release data on May industrial production at 0200GMT on Wednesday. Market analysts expect factory output to rise 6.3% last month, after increasing 6.5% in April.

The Asian nation will release fixed asset investment data and a report on retail sales at the same time.

Analysts expect China's economy to cool in coming months after a strong first quarter, with recent factory activity data also indicating a gradual slowdown is underway.



 Europe is likely to set the tone for global financial markets this week, with the European Central Bank policy meeting and British general election on investors' minds.

Meanwhile, in the U.S., market players will pay close attention to former FBI director James Comey's testimony before the Senate Intelligence Committee, in a hearing that could add to difficulties facing President Donald Trump.

Elsewhere, China is to release monthly trade and inflation data amid recent signs of cooling in the world's second largest economy.

A monetary policy announcement from the Reserve Bank of Australia will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. European Central Bank Policy Meeting

The European Central Bank's latest interest rate decision is due at 1145GMT (7:45AM ET) on Thursday. Most of the focus will be on President Mario Draghi's press conference 45 minutes after the announcement.

With economic growth clearly shifting into higher gear and political risks declining, investors will look for clues on when and how the ECB could scale back its massive asset purchase program.

The ECB could drop a long-standing reference to downside risks, calling them 'largely balanced'. It could also discuss dropping its so-called easing bias, a pledge to keep rates at their current or lower levels for an extended period and to increase the volume of asset buys if the outlook worsens.

Removing the reference to further rate cuts could risk strengthening the euro, which rose to a seven-month peak against the dollar last week.

2. British General Election

Britons will head to the polls on Thursday, with voters set to elect 650 members to the Lower House of Parliament from which a government will be formed, despite some public calls for a postponement in the wake of a weekend terror attack in London, which killed seven and left 48 injured.

Opinion polls in recent days suggest the contest may be closer than the expected comfortable victory for the Conservatives, led by Prime Minister Theresa May, with the Labour Party, under left-winger Jeremy Corbyn, closing the gap.

However, British opinion polls have had a relatively poor track record recently, raising expectations that the election outcome could again spring a surprise.

A big parliamentary majority for May would ease uncertainty for companies and investors and pave the way for the Bank of England to raise interest rates sooner than markets expect.

A failure to win the election with a large majority would weaken May just as formal Brexit talks are due to begin, while the loss of her majority in parliament would pitch British politics into turmoil.

3. Comey Testimony

Former FBI director James Comey is scheduled to testify before the Senate Intelligence Committee investigating Russia's alleged meddling in the 2016 U.S. election at 10:00AM ET (1400GMT) Thursday.

In his first public appearance since Trump fired him on May 9, Comey is expected to be asked about conversations in which the president is reported to have pressured him to drop an investigation into former national security adviser Michael Flynn, whose ties to Russia are under scrutiny.

Comey was leading the FBI's probe into the allegations, and his firing sparked a political uproar last month.

The Justice Department and multiple U.S. congressional committees are investigating Russia's actions in the 2016 presidential election and questions about possible collusion between Russian officials and Trump campaign associates.

The deepening turmoil surrounding the Trump administration have added to doubts that the president would be able to follow through on his campaign promises for tax cuts, deregulation and fiscal stimulus.

4. China Trade Figures

China is to release trade figures for May at around 0300GMT on Thursday. The report is expected to show that the country’s trade surplus widened to $47.8 billion last month from a surplus of $38.0 billion in April.

Exports are forecast to have climbed 7.0% in May from a year earlier, following a jump of 8.0% a month ago, while imports are expected to rise 9.0%, after increasing 11.9% in April.

Additionally, on Friday, the Asian nation will publish data on May consumer and producer price inflation. The reports are expected to show that consumer prices rose 1.5% last month, while producer prices are forecast to increase by 5.7%.

China's foreign exchange reserves for May due on Wednesday will also be in focus.

Authorities in Beijing have been turning the screws on financial stability risks and looking closely at credit in recent weeks, so May's figures will be of particular interest.

5. Reserve Bank of Australia Policy Meeting

The RBA's latest interest rate decision is due on Tuesday at 0430GMT.

Most economists expect the central bank to keep rates unchanged at the current record-low of 1.5% for the tenth straight meeting and maintain its neutral policy stance, as it balances the risk of rising household debt against subdued inflation and wages growth.

Besides the RBA, first-quarter growth data is due on Wednesday, followed by trade figures on Thursday.



The legal firm working on Saudi Aramco's flotation has advised the kingdom that a New York listing poses the greatest litigation risk of any jurisdiction, the Financial Times reported on Sunday, citing sources.

White & Case and others offering informal counsel have briefed top oil executives and the kingdom’s highest authorities, emphasizing a litigious culture in the United States, the FT said.

Legal risks arising from a New York listing include U.S. legislation that could allow families of the victims of the 9/11 attacks of 2001 to sue Saudi Arabia, the FT said.

Aramco could also face class-action suits if it did not comply with U.S. regulators' rules on disclosing reserves and data for oil companies, while aggressive shareholder lobby groups in the United States are also seen as a threat.

A New York Stock Exchange listing and one on Saudi Arabia’s Tadawul exchange has been the favored option for Saudi Aramco as Saudi officials and Saudi Aramco’s financial advisers believe the venue has the deepest pool of investors and is the most prestigious, the FT said, citing documents.

A premium category listing on the London Stock Exchange (L:LSE) alongside a domestic offering was seen as the next best option, followed by a standard listing on the LSE for Saudi Aramco, the FT said, citing the documents. Legal counsel is now implying that London is now the front-runner, it said.

Saudi Aramco did not immediately respond to requests for comment outside regular business hours. White & Case declined to comment on the report.

Saudi Prince Mohammed bin Salman, who is the head of Saudi Arabia's oil affairs, is expected to make a final decision within weeks, the FT said, citing an internal timetable.

The LSE, seen as one of the front-runners to win part of the IPO, has been pushing hard to land it. Sources told Reuters in May that the LSE is working on a new type of listing structure that would make it more attractive for Saudi Aramco to join.



Oil futures settled at the lowest level in more than three weeks on Friday, with prices suffering their largest weekly loss in a month amid growing concern over rising shale production in the U.S.

The U.S. West Texas Intermediate crude July contract fell 70 cents, or around 1.5%, to end at $47.66 a barrel by close of trade Friday. It touched its lowest since May 10 at $46.74 earlier in the session.

The U.S. benchmark lost $2.14, or about 4.3%, on the week, the largest weekly decline since the week ended May 5.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for August delivery declined 68 cents to settle at $49.95 a barrel by close of trade, after hitting a daily trough of $48.95, a level not seen since May 10.

For the week, London-traded Brent futures recorded a loss of $2.20, or roughly 4.2%.

Concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand pressured crude prices.

Data from energy services company Baker Hughes showed on Friday that U.S. drillers last week added rigs for the 20th week in a row, the longest such streak on record, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 11 to 733, extending a year-long drilling recovery to the highest level since April 2015.

President Donald Trump’s controversial decision to withdraw from the 2015 Paris climate agreement on Thursday sparked additional concerns that U.S. oil production could expand rapidly in the absence of a stringent focus on curbing the use of fossil fuels.

The Paris Agreement laid out a framework for countries to adopt clean energy and phase out fossil fuels such as oil, coal and natural gas.

The increase in U.S. drilling activity and shale production has mostly offset efforts by OPEC and other producers to cut output in a move to prop up the market.

Last week OPEC and some non-OPEC producers extended a deal to cut 1.8 million barrels per day in supply until March 2018. However, the news disappointed investors who had hoped for larger cuts.

Saudi Energy Minister Khalid al-Falih said further oil output cuts could be needed in the future but that OPEC and other leading producers would assess the market situation in July, Russia's TASS news agency reported on Saturday.

So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya and Nigeria, and a relentless increase in U.S. shale oil output.

Elsewhere on Nymex, gasoline futures for July lost 2.4 cents, or about 1.5% to end at $1.577 on Friday. It closed down around 4% for the week.

July heating oil slumped 1.6 cents to finish at $1.484 a gallon. For the week, the fuel declined roughly 5%.

Natural gas futures for July delivery dipped 0.9 cents to settle at $2.999 per million British thermal units, ending under $3 for the first time since mid-March. For the week, it dropped about 7%.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, June 6

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, June 7

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, June 8

The U.S. government is set to produce a weekly report on natural gas supplies in storage.

Friday, June 9

Baker Hughes will release weekly data on the U.S. oil rig count.




The dollar fell to seven month lows against a currency basket on Friday after a poor U.S. employment report added to uncertainty over the outlook for rate hikes by the Federal Reserve in the second half of the year.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.57% to 96.61 late Friday. It was the lowest close since the U.S. presidential election on November 8, which sent the index soaring.

The U.S. economy added 138,000 jobs last month the Labor Department reported, falling far short of economists’ expectations for 185,000 new jobs.

Figures for March and April were revised to show that 66,000 fewer jobs were created than expected, indicating that the labor market may be losing momentum, even though the unemployment rate ticked down to a 16-year low of 4.3%.

Most analysts still believe the disappointing data will not stop the Federal Reserve from raising interest rates at its meeting later this month.

Traders now see a roughly 88% chance of a Fed rate increase on June 14, down slightly from 89% before the jobs report.

But the slowdown in jobs growth could temper expectations for a pick-up in economic growth in the second quarter after the economy expanded by just 1.2% year-over-year in the first quarter.

The dollar fell to seven-month lows against the euro and the Swiss franc following the report, with EUR/USD advancing 0.6% to 1.1280 and USD/CHF down 0.94% to 0.9623.

The dollar retreated from one-week highs against the yen, with USD/JPY down 0.88% to 110.38.

Events in Europe are likely to set the tone for global financial markets this week, ahead of the European Central Bank policy meeting and British general election. Chinese data on trade and inflation will also be closely watched.

In the U.S., market players will pay close attention to former FBI director James Comey's testimony to the Senate Intelligence Committee, in a hearing that could add to difficulties facing the Trump administration.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, June 5

China is to publish its Caixin services PMI.

The UK is to release data on manufacturing activity.

The U.S. is to release data on factory orders and the Institute for Supply Management is to publish its manufacturing index.

Tuesday, June 6

The Reserve Bank of Australia is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision.

Wednesday, June 7

Australia is to publish data on first quarter economic growth.

The UK is to publish industry data on house price inflation.

Canada is to report on building permits.

Thursday, June 8

China and Australia are both to release data on trade.

Switzerland is to publish inflation figures.

In the UK, voting in the general election is to get underway.

The ECB is to announce its latest monetary policy decision and President Mario Draghi is to hold a post-policy meeting press conference.

The U.S. is to report on initial jobless claims.

Friday, June 9

China is to release inflation data.

The UK is to report on manufacturing production and trade.

Canada is to round up the week with its monthly employment report.




Gold prices rose to their highest level in over than a month on Friday after a disappointing U.S. employment report underlined the case for the Federal Reserve to continue raising rates at a gradual pace.

Gold for June delivery settled at $1,278.77 on the Comex division of the New York Mercantile Exchange, up 0.93%. It was the highest close since April 25.

The U.S. economy added 138,000 jobs last month the Labor Department reported, falling far short of economists’ expectations for 185,000 new jobs.

Figures for March and April were also revised to show that 66,000 fewer jobs were created than expected, indicating that the labor market may be losing momentum.

The unemployment rate ticked down to a 16-year low of 4.3%.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.57% to 96.61 late Friday. It was the lowest close since the U.S. presidential election on November 8, which sent the index soaring.

Gold and the dollar typically move in opposite directions, which means if the dollar goes down, gold futures, which are denominated in the U.S. currency, will rise.

Most analysts still believe the disappointing data will not stop the Federal Reserve from raising interest rates at its meeting later this month.

Traders now see a roughly 88% chance of a Fed rate increase on June 14, down slightly from 89% before the jobs report.

But the slowdown in jobs growth could temper expectations for a pick-up in economic growth in the second quarter after the economy expanded by just 1.2% year-over-year in the first quarter.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

Elsewhere in precious metals trading, silver jumped 1.56% to $17.55 a troy ounce late Friday.

Copper was trading at $2.57 a pound late Friday, down 0.44%.

Palladium was up 1.86% percent at $838.42, while platinum advanced 2.84% to $955.35 an ounce in late trade.

Events in Europe are likely to set the tone for global financial markets this week, ahead of the European Central Bank policy meeting and British general election. Chinese data on trade and inflation will also be closely watched.

In the U.S., market players will pay close attention to former FBI director James Comey's testimony to the Senate Intelligence Committee, in a hearing that could add to difficulties facing the Trump administration.

Monday, June 5

China is to publish its Caixin services PMI.

The UK is to release data on manufacturing activity.

The U.S. is to release data on factory orders and the Institute for Supply Management is to publish its manufacturing index.

Tuesday, June 6

The Reserve Bank of Australia is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision.

Wednesday, June 7

Australia is to publish data on first quarter economic growth.

The UK is to publish industry data on house price inflation.

Canada is to report on building permits.

Thursday, June 8

China and Australia are both to release data on trade.

Switzerland is to publish inflation figures.

In the UK, voting in the general election is to get underway.

The ECB is to announce its latest monetary policy decision and President Mario Draghi is to hold a post-policy meeting press conference.

The U.S. is to report on initial jobless claims.

Friday, June 9

China is to release inflation data.

The UK is to report on manufacturing production and trade.

Canada is to round up the week with its monthly employment report.




Saudi Arabia has raised its official selling prices (OSPs) for all its crude oil grades sold to Asia in July, in line with market expectations, after OPEC and non-OPEC producers agreed to extend supply cuts last month.

State oil giant Saudi Aramco said on Sunday it raised the July price for its Arab Light grade for Asian customers by $0.60 a barrel versus June to a discount of $0.25 a barrel to the Oman/Dubai average.

The hike was bigger than anticipated by Asian refiners and traders surveyed by Reuters. Saudi Aramco was expected to increase the price of its flagship Arab Light crude by 20-50 cents a barrel in July, as the contango in Middle East crude benchmarks narrowed last month.

A contango market refers to prompt prices that are lower than those in future months, while narrowing contango signals increased demand or tightening supply.

Aramco also raised its Arab Light OSP to Northwest Europe by 35 cents a barrel for July from the previous month to a discount of $3.10 a barrel to the ICE Brent Settlement.

The Arab Light OSP to the United States was set at a premium of $1.10 a barrel to the Argus Sour Crude Index (ASCI) for July, up $0.50 a barrel from the previous month.

OPEC, Russia and other oil producers agreed on May 25 to extend cuts in oil output by nine months to March 2018 as they battle a global glut of crude after seeing prices halve and revenues drop sharply in the past three years.

Saudi crude OSPs set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.




Global financial markets will focus on the Organization of Petroleum Exporting Countries highly-anticipated meeting on Thursday to see whether major producers plan to extend their current production-cut agreement.

Meanwhile, investors will look ahead to Wednesday’s minutes of the Federal Reserve’s latest policy meeting for further hints on the timing of the next U.S. rate hike.

In addition, market players will keep an eye out on a revised reading of first-quarter U.S. growth data to gauge the strength of the world's largest economy.

Elsewhere, in the U.K., traders will be looking ahead to a second reading on British growth data for further indications on the continued effect that the Brexit decision is having on the economy.

In the euro zone, market participants will await flash survey data on euro zone business activity for further signs on the strength of the region's economy and hints on when the European Central Bank will start withdrawing stimulus.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. OPEC Meeting

Oil ministers from the Organization of Petroleum Exporting Countries and other major producing countries will meet in Vienna on Thursday to decide whether to extend their current production agreement beyond a June 30-deadline.

In November last year, OPEC and 11 other non-OPEC producers, including Russia, agreed to cut output by about 1.8 million barrels per day between January 1 and June 30.

Most market analysts expect the oil cartel to extend output cuts for a further nine months until March 2018, instead of six months as previously expected.

There is also talk that OPEC is looking at the option of deepening current production cuts, but it is not clear whether there would be support for that.

So far, the production-cut agreement has had little impact on global inventory levels due to a relentless increase in U.S. shale oil output and rising supply from producers not participating in the accord, such as Libya.

2. Fed FOMC Meeting Minutes

The Federal Reserve will release minutes of its most recent policy meeting on Wednesday at 2:00PM ET (18:00GMT). In addition, a handful of Fed policymakers are due to make public appearances this week that may offer insight into the likelihood of higher interest rates in the months ahead.

Monday sees Minneapolis Fed President Neel Kashkari, Philadelphia Fed President Patrick Harker, Federal Reserve Governor Lael Brainard and Chicago Fed President Charles Evans make public appearances.

Kashkari and Harker are scheduled to deliver remarks again on Tuesday.

Dallas Fed President Robert Kaplan is on tap Wednesday.

Finally, on Thursday, Brainard and St. Louis Fed President James Bullard are scheduled to deliver comments.

The U.S. central bank left interest rates unchanged following its meeting on May 3 and gave a positive assessment of the U.S. economy, suggesting it was still on track for two more rate hikes this year.

But a recent run of disappointing U.S. economic data combined with signs of deepening political turmoil in the White House saw investors temper expectations for higher interest rates in the months ahead.

Futures traders are currently pricing in around a 70% chance of a hike at the Fed's June meeting.

3. U.S. Revised 1st Quarter Growth Data

The U.S. is to release revised figures on first-quarter economic growth at 8:30AM ET (12:30GMT) Friday. The data is expected to show that the economy grew at a 0.9% annual rate in the first three months of the year, upwardly revised from a preliminary estimate of 0.7%.

Besides the GDP report, this week's calendar also features U.S. data on new home sales, existing home sales, weekly jobless claims, consumer sentiment and durable goods orders.

Investors are likely to continue to fret over the latest headlines coming out of Washington for any new fallout from the Trump campaign investigation.

The deepening turmoil surrounding the Trump administration intensified doubts that the president would be able to follow through on his campaign promises for tax cuts, deregulation and fiscal stimulus.

4. U.K. First Quarter GDP - Second Estimate

The Office for National Statistics is to produce a second estimate on U.K. first-quarter economic growth at 08:30GMT (4:30AM ET) on Thursday.

The report is forecast to confirm the economy grew 0.3% in the January-March quarter, underlining worries that Britain's economy is slowing just as it prepares to start negotiations to leave the European Union.

On a year-over-year basis, the economy is forecast to grow by 2.1%, also unchanged from an initial estimate.

In addition, traders will be keeping an eye out for the Bank of England's Inflation Report due on Tuesday.

Recent data has pointed to signs that rising inflation, caused in part by the pound's post-Brexit vote tumble, is crimping spending by consumers, the main drivers of the economy, just as the country is set to start EU divorce negotiations.

5. Flash Euro Zone PMIs for May

The euro zone is to publish preliminary data on manufacturing and service sector activity for May at 08:00GMT (4:00AM ET) on Tuesday, amid expectations for a modest decline.

Ahead of the euro zone PMI's, France and Germany will release their own PMI reports at 07:00GMT and 07:30GMT respectively.

The European Central Bank is likely to signal a move away from its ultra-easy monetary policy by September as economic performance improves and political risks recede, according to most market experts.




 Oil futures settled at a four-week high on Friday, with prices scoring a weekly gain of more than 5% amid optimism that key producers will extend output cuts beyond an agreed-on June deadline when they meet later this month.

The U.S. West Texas Intermediate crude June contract tacked on 98 cents, or around 2%, to end at $50.33 a barrel by close of trade Friday, the first time it has settled above $50 in more than four weeks. It touched the highest since April 21 at $50.53 earlier in the session.

The U.S. benchmark rose $2.49, or about 5%, on the week, the second straight weekly advance.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery added $1.10 to settle at $53.61 a barrel by close of trade, after hitting a daily peak of $53.82, a level not seen since April 19.

For the week, London-traded Brent futures recorded a gain of $2.77, or roughly 5.2%.

Oil ministers from the Organization of Petroleum Exporting Countries and other major producing countries will meet in Vienna on May 25 to decide whether to extend their current production agreement beyond a June 30-deadline.

In November last year, OPEC and 11 other non-OPEC producers, including Russia, agreed to cut output by about 1.8 million barrels per day between January 1 and June 30.

Most market analysts expect the oil cartel to extend output cuts for a further nine months until March 2018, instead of six months as previously expected.

There is also talk that OPEC is looking at the option of deepening current production cuts, but it is not clear whether there would be support for that.

So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya, and a relentless increase in U.S. shale oil output.

Data from energy services company Baker Hughes showed on Friday that U.S. drillers last week added rigs for the 18th week in a row, the second-longest such streak on record, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 8 to 720, extending an 11-month drilling recovery to the highest level since April 2015.

Elsewhere on Nymex, gasoline futures for June gained 4.6 cents, or about 2.9% to end at a four-week high of $1.652 on Friday. It closed up around 4.8% for the week amid easing concern over lackluster demand.

June heating oil added 3.7 cents to finish at $1.582 a gallon. For the week, the fuel tacked on roughly 6%.

Natural gas futures for June delivery rose 7.4 cents to settle at $3.256 per million British thermal units, up 2.3% for the session but about 4.9% lower for the week.

In the week ahead, market participants will focus on the Organization of Petroleum Exporting Countries highly-anticipated meeting on Thursday to see whether major producers plan to extend their current production-cut agreement.

Meanwhile, oil traders will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, May 23

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, May 24

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, May 25

Major global oil producers are due to meet in Vienna in order to decide on extending their current output-cut deal.

The U.S. government is to produce a weekly report on natural gas supplies in storage.

Friday, May 26

Baker Hughes will release weekly data on the U.S. oil rig count.




Gold prices were higher on Friday and notched the largest weekly gain since mid-April as political uncertainty surrounding the Trump administration pressured the dollar lower, boosting demand for the precious metal.

Gold for June delivery closed up 0.18% at $1,255.07 on the Comex division of the New York Mercantile Exchange. For the week, the precious metal was up 2.06%.

The dollar came under renewed selling pressure on Friday following reports that a senior White House adviser is a person of interest in the investigation into alleged Russian interference in November’s presidential election.

The Justice Department on Wednesday appointed a former FBI director as special counsel to investigate possible coordination between the Trump campaign and Russia.

The appointment of a special counsel comes after Trump fired James Comey, his FBI director who was leading a probe into Russia’s role in the election and reports that he attempted to interfere with the judicial process, leading to talk of possible impeachment.

Investor sentiment has been hit by fears that the U.S. political system could become engulfed by crisis, preventing lawmakers from pushing through tax or spending reforms.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, ended down 0.79% at a six-month trough of 97.00, having given up all the gains it had made following the election in November.

The index ended the week down 2.12%, its worst weekly loss since last July.

A weaker dollar tends to boost prices for gold, which is denominated in the U.S. currency.

Elsewhere in precious metals trading, silver rose 1.24% to $16.87 a troy ounce late Friday, while copper climbed 2.19% to $2.58 a pound

Platinum rose 0.38% to $940.4 a troy ounce, while palladium was down 1.07% to $757.23 a troy ounce.

In the week ahead, investors will be looking at Wednesday’s Federal Reserve meeting minutes for fresh indications on the possible timing of the next U.S. rate hike.

Revised data on U.S. first quarter growth and private sector survey data out of the euro zone will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, May 22

Eurogroup finance ministers are to hold regularly scheduled talks in Brussels.

Financial markets in Canada are to remain closed for a holiday.

Tuesday, May 23

The euro zone is to publish survey data on private sector business activity.

The Ifo Institute is to report on German business climate.

Bank of England Governor Mark Carney and several other officials are to testify on inflation and the economic outlook before Parliament's Treasury Committee.

Canada is to release data on wholesale sales.

The U.S. is to publish a report on new home sales.

Wednesday, May 24

ECB President Mario Draghi is to speak at an event in Madrid.

The Bank of Canada is to announce its benchmark interest rate and publish a policy statement which outlines economic conditions and the factors affecting the monetary policy decision.

The U.S. is to report on existing home sales.

The Fed is to publish the minutes of its latest policy meeting, giving investors insight into how officials view the economy and their policy options.
Thursday, May 25

The UK is to publish revised data on first quarter growth, as well as preliminary data on business investment.

The U.S. is to publish the weekly report in jobless claims.

Friday, May 26

The U.S. is to round up the week with data on durable goods orders and a revised data on first quarter growth and consumer sentiment.



The U.S. dollar resumed its decline on Friday, notching its largest weekly loss in nearly a year as political turbulence around the Trump administration continued to dominate market sentiment.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, ended down 0.79% at a six-month trough of 97.00, having given up all the gains it had made following the election in November.

The index ended the week down 2.12%, its worst weekly loss since last July.

The index has fallen more than 5% from its 14-year high of 103.82 set on January 3, as investors lost faith in the so-called ‘Trump Trade’.

The dollar came under renewed selling pressure following reports that a senior White House adviser is a person of interest in the investigation into alleged Russian interference in November’s presidential election.

The Justice Department on Wednesday appointed a former FBI director as special counsel to investigate possible coordination between the Trump campaign and Russia.

The appointment of a special counsel comes after Trump fired James Comey, his FBI director who was leading a probe into Russia’s role in the election and reports that he attempted to interfere with the judicial process, leading to talk of possible impeachment.

The dollar has been hard hit by fears that the U.S. political system could become engulfed by crisis, preventing lawmakers from pushing through tax or spending reforms.

The stronger euro rallied to fresh six month highs against the dollar on Friday, with EUR/USD advancing 0.95% to 1.1207. The dollar ended the week down 2.5% against the single currency.

Demand for the euro continued to be underpinned as investors shifted their attention back to the outlook for monetary policy as concerns over political risks receded.

Recent economic data has indicated that the economic recovery in the currency bloc is deepening, fueling speculation over how soon the European Central Bank could scale back its stimulus program.

The dollar was also lower against the yen, with USD/JPY down 0.2% to 111.25. The dollar notched its first weekly decline in five against the Japanese currency, falling 1.82%.

The dollar hit six month lows against the traditional safe haven Swiss franc, with USD/CHFdown 0.7% at 0.9729 late Friday.

Sterling also gained ground against the greenback, with GBP/USD rising 0.73% to 1.3034 in late trade, to end the week with a gain of 1.16%.

In the week ahead, investors will be looking at Wednesday’s Federal Reserve meeting minutes for fresh indications on the possible timing of the next U.S. rate hike.

Revised data on U.S. first quarter growth and private sector survey data out of the euro zone will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, May 22

Eurogroup finance ministers are to hold regularly scheduled talks in Brussels.

Financial markets in Canada are to remain closed for a holiday.

Tuesday, May 23

The euro zone is to publish survey data on private sector business activity.

The Ifo Institute is to report on German business climate.

Bank of England Governor Mark Carney and several other officials are to testify on inflation and the economic outlook before Parliament's Treasury Committee.

Canada is to release data on wholesale sales.

The U.S. is to publish a report on new home sales.

Wednesday, May 24

ECB President Mario Draghi is to speak at an event in Madrid.

The Bank of Canada is to announce its benchmark interest rate and publish a policy statement which outlines economic conditions and the factors affecting the monetary policy decision.

The U.S. is to report on existing home sales.

The Fed is to publish the minutes of its latest policy meeting, giving investors insight into how officials view the economy and their policy options.

Thursday, May 25

The UK is to publish revised data on first quarter growth, as well as preliminary data on business investment.

The U.S. is to publish the weekly report in jobless claims.

Friday, May 26

The U.S. is to round up the week with data on durable goods orders and a revised data on first quarter growth and consumer sentiment.




U.S. and Saudi Arabian companies signed business deals worth tens of billions of dollars on Saturday during a visit by U.S. President Donald Trump, as Riyadh seeks help to develop its economy beyond oil.

National oil firm Saudi Aramco said it signed $50 billion of agreements with U.S. firms. Energy minister Khalid al-Falih said deals involving all companies totaled over $200 billion, many of them designed to produce things in Saudi Arabia that had previously been imported.

Business leaders on both sides were keen to demonstrate their talks had been a success, so there was an element of showmanship in the huge numbers. Some deals had been announced previously; others were memorandums of understanding that would require further negotiations to materialize.

Nevertheless, the deals illustrated Saudi Arabia's hunger for foreign capital and technology as it tries to reduce its dependence on oil exports. Low oil prices in the past couple of years have slowed the economy to a crawl and saddled the government with a big budget deficit.

"We want foreign companies to look at Saudi Arabia as a platform for exports to other markets," Falih told a conference attended by dozens of U.S. executives.

In March, Saudi Arabia's King Salman toured Asia and his delegation signed similar agreements worth tens of billions of dollars there, including deals worth as much as $65 billion in China.

FUNDSEven as it sought U.S. investment on Saturday, Riyadh made two announcements on plans to deploy its own financial reserves for projects that would cement economic ties with the United States.

The Public Investment Fund, Riyadh's main sovereign wealth fund, and U.S. private equity firm Blackstone said they were studying a proposal to create a $40 billion vehicle to invest in infrastructure projects, mainly in the United States.

The vehicle would obtain $20 billion from the PIF and with additional debt financing, might invest in over $100 billion of infrastructure projects - a political boon to Trump, who has said he wants to rebuild crumbling U.S. infrastructure.

Meanwhile the world's largest private equity fund, backed by the PIF, Japan's Softbank Group and other investors including U.S. firms Apple Inc and Qualcomm, said on Saturday it had raised over $93 billion to invest in technology sectors such as artificial intelligence and robotics.

Much of the Softbank Vision Fund's money is likely to be invested in the United States, helping Riyadh obtain access to technology that it could use to diversify its economy.

Top Saudi economic policy makers, including the finance minister and head of the kingdom's main sovereign wealth fund, described investment opportunities in Saudi Arabia to the conference on Saturday.

Saudi officials said they aimed to prepare new, streamlined rules covering direct investment by foreign firms within 12 months.

Among the deals signed on Saturday, GE said it reached $15 billion of agreements involving almost $7 billion of goods and services from GE itself. They ranged from the power and healthcare sectors to the oil and gas industry and mining.

Jacobs Engineering will form a joint venture with Aramco to manage business projects in the kingdom, and McDermott International will transfer some of its ship fabrication facilities from Dubai to a new shipbuilding complex which Aramco will build within Saudi Arabia.

Riyadh, one of the world's biggest military spenders, is keen to develop a domestic arms industry rather than import weapons, so several deals were in military industries.

Lockheed Martin said it would support the final assembly and completion of an estimated 150 S-70 Black Hawk utility helicopters in Saudi Arabia.




Euro zone finance ministers and the International Monetary Fund will seek a deal on Monday on Greek debt relief that balances the IMF's demand for a clear "when and how" with Germany's preference for "only if necessary" and "details later".

Without the deal, no new loans can be disbursed to Athens, even though the bailout is now handled only by euro zone governments, and Greece needs new credit to repay some 7.3 billion euros worth of maturing loans in July.

Without the loans, Athens is likely to default - a bad start for a country that wants to return to market financing next year when its latest bailout, the third since 2010, ends in mid-2018.

For its part, Greece has done what it could to secure a deal. It has agreed, albeit after months of negotiations, with the euro zone lenders and the IMF on pensions and tax reforms.

Euro zone officials say a report prepared by experts on whether Greece has implemented what is called "prior actions" - laws that have to be passed to make the reforms stick - is positive. That means only a deal on debt relief between the IMF and the euro zone now stands between Athens and new loans.

But an agreement is far from simple.

"The chances of a deal are 50-50. We have done pretty good preparations, I can express a hope there will be an agreement, but it is an assumption, not a forecast," a senior EU official involved with the preparations said.

A group of north European countries led by Germany wants the IMF to join for credibility reasons, believing the European Commission's approach towards Athens can be too lenient.

The same countries, however, oppose a firm commitment of debt relief for Greece, fearing the disapproval of bailout-weary voters at home. They are also concerned that once Athens gets a debt deal, it would lose the incentive to continue reforms.

The discussion therefore focuses on how to make a euro zone statement on Greek debt relief from a year ago, more detailed and more concrete.

"The IMF wants maximum (debt relief) commitment upfront, while others would prefer to be more precise only in 2018," a senior euro zone official said, referring to the end of the third bailout in mid-2018, by which time lenders would have a full view of Greek reform completion and the latest economic data.

If there is a debt deal, Athens has tentative plans for a return to bond markets as early as July.

The debt relief discussion is based on a promise made by the Eurogroup in May 2016 to extend the maturities and grace periods on Greek loans so that Greek gross financing needs are below 15 percent of GDP after 2018 for the medium term, and below 20 percent of GDP later.

The Eurogroup also said it could consider replacing more costly IMF loans to Greece with cheaper euro zone credit and transfer the profits made from a portfolio of Greek bonds bought by euro zone national central banks back to Athens.

All that could happen only if Greece delivers on its reforms by mid-2018 and only if an analysis shows Athens needs the debt relief to make its debt sustainable.

The IMF believes that debt relief, or at least a clear promise of it now, is needed to restore investor confidence in Greece, especially if the country, which has public debt of 197 percent of GDP, is to return to market financing next year.

Greek debt to GDP has actually risen during the various bailout periods, primarily as a result of sinking GDP brought on at least in part by the austerity demanded by lenders.



Political risk to dominate thin calendar of economic events

The US dollar will finish the week ending May 12 higher across the board against major pairs. Despite the dollar rally losing steam as softer economic data was released the U.S. Federal Reserve kept the June rate hike on the table boosting the greenback on a monetary policy divergence basis. The central banks of New Zealand and England issued statements this week and made it clear that there are no rate changes coming soon, unlike the US central bank. The miss in inflation and sales could only highlight a temporary problem as the May 7 U.S. non farm payrolls (NFP) added 211,000 jobs still points to a solid recovery.

The market is pricing in a 73.8 percent probability that when it meets on June 14 it will raise interest rates to a 100-125 basis points range. Weaker US data has brought it down from 83.1 percent yesterday but taking Fedspeak into consideration it remains a firm possibility. Federal Open Market Committee (FOMC) members have seen the number of speeches they deliver increase which better prepares the market for upcoming decisions. The FOMC meeting in March was a great example as Fed members warned investors that they were not pricing in an upcoming rate hike. The meeting in June become a test of trust. The Fed has been typically vague in their timing but is now dropping far more hints without resorting to outright guidance.

The week of May 15 to May 19 will feature little in the way of economic events. The market will focus on data out of the UK, with UK inflation to be released on Tuesday, May 16 at 4:30 am EDT and retail sales on Thursday, May 18 at 4:30 am EDT. The Bank of England (BoE) kept rates unchanged last week and the central bank issued a warning of the lack of wage growth as inflation is rising to a forecasted 2.8 percent in 2017. The BoE also reduced economic growth forecasts to 1.9 percent as the pound has been weaker ahead of Brexit.

The EUR/USD lost 0.601 in the last five days. The single currency is trading a 1.0932 after investors sold the EUR following the results of the second round of the French presidential election. The victory of Emmanuel Macron was correctly forecasted by pollsters and while the market breathed a sigh of relief it also took sold the EUR as it deemed the currency would not keep gaining ground.

Dovish comments from European Central Bank (ECB) president Mario Draghi kept the currency from appreciating versus the USD. In the other hand U.S. Federal Reserve members are keeping the June interest rate hike alive by talking about the need to act sooner rather than later and keep the hope of four rate hikes alive this year.

The price of crude gained 3.08 in the last week. West Texas is trading at $47.59 after a massive drawdown of weekly inventories in the US ended a string of losses for energy prices. The Organization of the Petroleum Exporting Countries (OPEC) has also been active with comments around the success of its production cut agreement and the high probability of an extension to be announced at the meeting with other major producers on May 25.

The Energy Information Administration (EIA) reported a 5.2 million barrels draw for the week ending May 5. Gasoline inventories fell by 200,000 which is feeling optimism ahead of the start of the US driving season. The drawdown in US energy stocks boosted the price of oil as it lined up with OPEC's release of data confirming their production limits, but the fact that there is low demand for energy and US producers, not bound by any agreement, are ramping up production to take advantage of current price levels will keep the price of crude volatile.

The USD/MXN lost 1.372 percent in the last five days. The currency pair is trading at 18.7523 after the political uncertainty in the US is removing downward pressure on the Mexican currency as the topic of trade and immigration is not top of the US political agenda until the turmoil in the White House can be resolved. Oil prices have also boosted the performance of the peso with lower inventories in the US driving crude prices higher. Mexico is part of the OPEC production cut and is expected to take part in the extension that will be announced on May 25.

The MXN was trading higher after the disappointing sales and inflation data out of the US on Friday morning. The Mexican peso went form being one of the worst performers during the US presidential elections and up to the inauguration of Donald Trump, only to quickly regain ground in 2017. Economic fundamentals have not changed much in that time frame, but political risk and risk aversion have dictated the price of the peso as it is used as proxy for other emerging market currencies.

Market events to watch this week:

Sunday, May 14

  • 6:45 pm NZD Retail Sales q/q
  • 10:00 pm CNY Industrial Production y/y

Monday, May 15

  • 9:30 pm AUD Monetary Policy Meeting Minutes

Tuesday, May 16

  • 4:30 am GBP CPI y/y
  • 8:30 am USD Building Permits
  • 6:45pm NZD PPI Input q/q

Wednesday, May 17

  • 4:30 am GBP Average Earnings Index 3m/y
  • 8:30 am CAD Manufacturing Sales m/m
  • 10:30 am USD Crude Oil Inventories
  • 9:30 pm AUD Employment Change
  • 9:30 pm AUD Unemployment Rate

Thursday, May 18

  • 4:30 am GBP Retail Sales m/m
  • 8:30 am USD Unemployment Claims

Friday, May 19

  • 8:30 am CAD CPI m/m
  • 8:30 am CAD Core Retail Sales m/m



HIGHLIGHTS OF THE WEEK

United States

  • Markets started the week off on a good note on French presidential election results and fairly constructive earnings and economic data. The S&P500 flirted with record highs, and the VIX fell to its lowest level in more than two decades.
  • Sentiment soured later in the week as soft inflation data overshadowed a relatively robust retail spending report, with sales up 0.4% atop of an upwardly revised March gain. Total CPI inflation decelerated from 2.3% to 2.2% in April with the core measure slowing from 2.0% to 1.9% on the month.
  • Expectations for a Fed rate hike as of June pared back slightly, but remained above 75% through this morning. Unless data continues to disappoint, we expect the Fed will raise rates next month, with another hike likely later on in the year.

Canada

  • Canadian housing starts pulled back somewhat in April, but recent strength left the trend measure at 214k units, its fastest pace since late-2012.
  • The Canadian dollar was down slightly on the week. The loonie has underperformed its peers so far this year, and speculative short interest has reached all-time highs, reflecting concerns around the health of Canadian housing and mortgage markets.
  • At present, fears of a U.S.-style housing crisis appear overblown. The most likely scenario remains that headwinds to the market continue to intensify as we approach 2018, leading to a gradual cooling.

UNITED STATES - SOFT INFLATION DATA PARES JUNE HIKE EXPECTATIONS

Markets started the week off on a forward foot with rising confidence in the global economy, helped by last Friday's strong U.S. jobs report, further enhanced by the French presidential election results. The price investors demand to protect against volatility dropped, with the VIX falling early in the week, and touching its lowest level since 1993. U.S. equities were also supported by relatively strong earnings reports early in the week, with the S&P500 flirting with the 2,400 point level. Meanwhile a mild rebound in oil prices, following the bullish inventory report, shored up energy stocks since mid-week. The mood soured somewhat by the end of the week as a relatively good retail sales report was overshadowed by weak CPI data.

The election of Emmanuel Macron as President of France, the centrist candidate who ran on a platform of reform, was expected and largely priced in by markets. Still, it was a welcome development for global investors following the protectionist tilt in popular sentiment across many advanced economies over the past year. The result comes alongside some improvement in economic fortunes. This week, the European Union revised higher its Eurozone and U.K. growth outlook, with industrial production and employment growth in France coming in better than expected recently. But, while the new president has some political capital, he faces significant hurdles to enacting the much needed pro-growth reforms, with much riding on the results of the legislative assembly elections to take place in a month.

The U.S. data calendar was relatively light until Friday. The NFIB Index of Small Business Optimism held up well, while labor market strength was further confirmed by a strong job openings in March and a decline in both initial and continuing claims in early-May. Investors also had a number of Fed speeches to digest. Most of the speeches stuck to the script telegraphed by last week's FOMC policy statement, suggesting the Committee viewed the early-year weakness as transitory, and expected a firming in 'hard' economic data during the second quarter. Most Committee members continue to see a fair chance for two more hikes this year, and see the Fed beginning to wind down the balance sheet late this year or in early-2018.

The Fed's expectations were only partly confirmed by this morning's data. April's retail sales were shy of expectations, but nonetheless indicated more consumption momentum into the second quarter given the upward revisions to March spending figures. On the other hand, consumer price data matched expectations for 0.2% m/m as far as the headline print, but came in weaker after excluding food and energy prices with the core measure up a mere 0.1% m/m. After the unexpected decline in March, the softness in April, which saw the headline and core inflation measures slip to 2.2% and 1.9%, respectively, is likely to somewhat quiet those worried about the Fed falling behind the inflation curve.

While the soft CPI numbers may embolden a more dovish tilt within the FOMC, we believe that the strong April producer and import price data, which typically leads consumer prices, should help support the case for a rate hike. Moreover, while the soft CPI data has slightly pared back expectations for a move next month, markets continue to price in odds near 75%. Ultimately, unless the data continues to disappoint, we don't expect the Fed will pass on the opportunity to raise rates next month.

CANADA - HOUSING CONCERNS KEEP LOONIE WEAK

It was a light week for economic data in Canada, and accordingly, markets did not see any major moves. The S&P/TSX equity index was down slightly at the time of writing, despite some gains in crude oil prices as the week progressed. Equity markets at the moment appear more focused on events related to Canadian housing markets, including the downgrade of major Canadian banks by credit rating agency Moody's. Concordantly, the Canadian dollar remained volatile, and appeared likely to end the week down, continuing the theme of weak performance this year.

In the only major economic datapoint of the week, Canadian housing starts pulled back a bit in April, dropping back a notch to 214k units after a red-hot March print (252k). The pullback was relatively broad-based: the volatile multi-family segment saw a sizeable drop (-33k units), but so too did the more stable single family construction (-9k). Ultimately, the pace observed in April is likely more in line with underlying trends, but more near-term volatility in the figures is likely as builders in Ontario digest the recently announced 'Fair Housing Plan'. Aspects of the plan are positive for housing supply, such as an accelerated project approvals process. Conversely, changes around assignment sale rules may dent demand and crimp future supply.

Despite all indications pointing to robust GDP growth in the first quarter of 2017 and a steady expansion thereafter, sentiment towards Canada appears to have soured recently, reflected in a currency that has significantly underperformed its peers (Chart 1). The U.S. administration's remarks on NAFTA certainly haven't helped, but the more likely culprit appears to be perceived weaknesses in the financial system underpinning the housing market. The events surrounding Home Capital Group were a catalyst, with non-commercial (i.e. speculative) short interest in the Canadian dollar spiking following the announcement of further regulatory investigation. Indeed, since then, short interest has continued to climb, reaching an all-time high last week (Chart 2; this week's positioning data will be published later this afternoon).

Although housing markets are the key risk to the Canadian economy, fears of a U.S.-style housing crisis appear overblown. A string of macroprudential tightening measures in recent years may not have had much of a cooling effect, partly due to falling interest rates, but they have helped to reduce risks by improving underwriting standards. While reliable data on the 'shadow' mortgage market is scarce, growth appears to have outpaced the overall market in recent years. Still, such lending is a relatively new phenomenon, and its share of outstanding mortgages likely remains small.

Thus, while the risk of a correction cannot be dismissed, the more likely scenario is one of mounting headwinds. These would take the form of a gradual rise in borrowing costs, stretched affordability, the ongoing impact of past and recent cooling measures, and the potential reduction of credit availability from marginal lenders. Together these should serve to cool the hottest Canadian housing markets as we move into the latter half of the year and into 2018. Some frictions in this process are inevitable, but on balance we continue to expect a gradual, orderly deceleration of housing activity.




U.S. Review

Mixed Signals on Inflation to Start Q2

  • Survey data from businesses suggest that the labor market continues to tighten.
  • Import and producer prices showed signs of acceleration this week, but another soft reading for the core CPI sends mixed signals to the Fed. On balance, the Fed remains positioned to hike rates in June while maintaining its slow and steady mentality.
  • Retail sales were disappointing in April, but upward revisions to March's initial reading may indicate personal consumption growth was likely a bit stronger in Q1 than initially reported.

Mixed Signals on Inflation to Start Q2

The National Federation of Independent Business (NFIB) Small Business Optimism Index kicked off the week with a small decline of 0.2 points in April. The decline was led by a drop in expectations for improvement in the economy, which fell 8 points following the initial unsuccessful attempt to replace the Affordable Care Act. Despite the dip, confidence remains high, and the employment segments of the survey signaled even more pronounced labor market tightening. The share of respondents saying that it is hard to fill job openings edged up to 33 percent in April, the highest level since November 2000 (top chart). The share of business owners citing "finding qualified labor" as their most important problem is also trending near its previous high.

The Job Openings and Labor Turnover Survey (JOLTS) showed job openings rose slightly in March, ending the month at 5.7 million. With a relatively high share of employers struggling to fill positions, involuntary separations remain limited; the layoff & discharge rate is near an all-time low. The quit rate held steady at 2.1 percent in March, the level at which this measure has hovered for most of the past year. Although this marks an improvement from earlier in the cycle, wages have still failed to accelerate thus far in 2017. With the share of small businesses reporting jobs are hard to fill at a 17-year high, an acceleration in quits would bode well for a pick-up in wage growth later this year.

Inflation showed some continued signs of firming this week. Led by higher industrial supplies and fuel costs, import prices increased 0.5 percent in April. Excluding fuel, import prices increased 0.3 percent and are up 1.1 percent over the past year. Over the past three months, nonfuel import prices have risen at a 3.5 percent annualized clip, the fastest pace since 2011 (middle chart). Producer prices also surprised to the upside, rising 0.5 percent in April compared to expectations for a 0.2 percent increase. Excluding food, energy and trade services–our preferred measure of the PPI–prices jumped 0.7 percent, the largest increase in the three and a half year history of the series.

Consumer prices also rose in April, boosted by higher energy prices. However, the core CPI rose a smaller-than-expected 0.1 percent, bringing the year-ago pace of core inflation down to 1.9 percent. Core consumer price inflation has eased a bit to start 2017; the 1.9 percent year-ago reading was the first sub-two percent print since late 2015. The slowdown in core consumer prices is a bit puzzling given the price pressures further back in the pipeline. With lower energy prices likely to weigh on headline inflation in May, the Fed will have reason to maintain its slow and steady approach to tightening policy at its June meeting.

Retail sales rounded out the week this morning. Sales were disappointing in April, but upward revisions to March's initial reading suggest personal consumption growth may have been a bit stronger in Q1 than initially reported. The series is adjusted for the timing of Easter, however, and we may see a different story in the personal consumption data. Building materials, motor vehicles & parts and electronics outperformed, while clothing, furniture and food & beverage sales were soft.

U.S. Outlook

Housing Starts • Tuesday

Unseasonably mild winter weather during the first two months of the year helped get homebuilding off to a strong start in 2017. The relatively favorable building conditions allowed more construction activity to begin earlier this year, with housing starts through the first three months of the year up 8.1 percent from a year ago. Apartment construction accounted for a significant portion of the increase, as starts of five units or more are up 14.1 percent on a year-to-date basis. Single-family housing starts are up a more modest 5.9 percent over the same period.

We look for housing starts to recoup most of March's decline and rise to a 1.257 million-unit annual rate in April. While the mild winter weather likely pulled some building activity forward into the first quarter, we continue to expect housing starts to rise 7.3 percent this year, with virtually all of the growth coming from single-family construction.

Previous: 1,215K Wells Fargo: 1,257K Consensus: 1,260K

Industrial Production • Tuesday

Industrial production rose 0.5 percent in March, marking the second-largest increase in more than a year. However, the gain was almost entirely driven by a surge in utilities output, which reflected the return of more normal temperatures in March. Looking past the headline, manufacturing production declined 0.4 percent on the month, snapping a six-month string of gains. Notably, motor vehicle & parts output declined 3.0 percent as auto production pulled back. The weakness was not solely in autos, as declines were recorded across most durable and nondurable subsectors.

While the ISM manufacturing index edged another leg down April, the index remains at a still solid level that is consistent with our forecast. Looking to April, we expect a modest pickup in industrial production. While a breakout in activity seems unlikely in the nearterm, we expect manufacturing output expanded somewhat in April, and we look for a gain of 0.4 percent.

Previous: 0.5% Wells Fargo: 0.4% Consensus: 0.4%

Leading Economic Index • Thursday

The Leading Economic Index (LEI) continued to trend higher in March, increasing 0.4 percent. The gain marks the index's seventh-consecutive monthly increase. The improvement was relatively broad based as six of the LEI's eight components added to growth over the month. The interest rate spread component was the largest contributor in March, adding 0.19 percentage points to the headline. ISM new orders and the housing permits components were also strong on the month. Meanwhile, manufacturing hours worked and initial jobless claims were sources of weakness, subtracting 0.13 percentage points and 0.09 percentage points from the topline figure.

We expect the LEI to rise a modest 0.4 percent in April. The yield spread, manufacturing average weekly hours and initial unemployment claims components likely provided the largest contributions to the index's gain.

Previous: 0.4% Wells Fargo: 0.4% Consensus: 0.3%

Global Review

French Elections, Canadian Housing, and More

  • By early this week financial markets were breathing a big sigh of relief with the results from the French elections, which produced a lopsided victory for the establishment (for lack of a better term) candidate, Emmanuel Macron, versus the extreme right candidate, Marine Le Pen.
  • Canadian housing starts came down as expected to a still relatively strong 214,100 unit pace from a slightly downwardly revised 252,300 unit pace in March. March's increase in housing starts was the strongest print since early in 2012.
  • Mexican industrial production remained flat in March.

Liberty, Equality, Fraternity

By early this week financial markets were breathing a big sigh of relief with the results from the French elections, which produced a lopsided victory for the establishment (for lack of a better term) candidate, Emmanuel Macron, versus the far right candidate, Marine Le Pen. Although polls before the election showed an almost uncontested election with Mr. Macron wining the contest almost unchallenged, many were concerned with the ability of polls to measure correctly, especially after several "surprises" during the last several years, i.e., Brexit and Trump.

Now, Mr. Macron will have to come up with a sound strategy to gain enough members in parliament during the June parliamentary elections as well as design a strategy to bring other parties to the table so he can form a governing coalition that can start delivering on his promises. And this is not going to be easy. Ms. Le Pen's rallying banners are not something that you can dismiss and if the political system tries to do so they do it at their own perils. Although Ms. Le Pen lost the election, the gain in votes was very important. In fact, voter participation during this presidential election was one of the lowest since the 1981. Interestingly enough, Ms. Le Pen almost doubled the number of voters compared to her father's, 10.6 million compared to 5.5 million in 2002, while Mr. Macron had only 20.7 million people voting for him versus 25.5 million who voted for Jacques Chirac in 2002 (read more on France's challenges on our Topic of the Week section).

Canadian Housing Starts Payback in April

In Canada, the country's housing market which has remained relatively strong, even as the economy downshifted due to the decline in oil prices over the last several years, saw some payback in April from the strong increase recorded in March. Housing starts came down as expected to a still relatively strong 214,100 unit pace from a slightly downwardly revised 252,300 unit pace in March. March's increase in housing starts was the strongest print since early in 2012. Housing starts in Canada are normally volatile but it seems that volatility has increased considerably since 2015 (middle graph). Meanwhile, building permits were down further in March, this time 5.8 percent compared to a decline of 2.8 percent in February while the new housing price index was up 0.2 percent after increasing 0.4 percent in February. This follows a downgrade on Canadian banks by Moody's investor services due to high household debt and concerns on high home prices.

Mexican Industrial Production Remains Flat in March

In Mexico, industrial production remained flat in March. Public utilities were up 0.5 while the mining sector improved 0.1 percent. However, manufacturing output was down 0.3 percent and construction output was down 0.2 percent. The year-over-year non-seasonally adjusted numbers looked much better, but those are not a good measure this time around because Easter occurred in March during 2016 and in April this year, which distorts the index and shows a stronger industrial sector than what it truly is.

Global Outlook

U.K. CPI • Tuesday

The U.K. will release CPI inflation for April this coming Tuesday. The consensus forecast looks for it to rise 0.4 percent on the month and 2.6 percent year over year. The CPI inflation rate in the U.K. stands at 2.3 percent and has trended upwards since early 2016. The sharp depreciation of the British pound following the Brexit referendum last June has seemed to have inflation implications.

While the rebound in energy prices has certainly helped support price pressures, core CPI, which strips out energy effects, has picked up too. April's core rate is expected to grow 2.2 percent in April, following 1.8 percent growth in March. The jump in prices has eroded growth in real income, which has, in turn, weighed on consumer spending. However, stagnation in average hourly earnings growth suggests that the core rate of inflation likely will not continue to shoot up.

Previous: 2.3% (Year-over-Year) Wells Fargo: 2.8% Consensus: 2.6%

Japan Q1 GDP • Wednesday

Japanese economic growth in Q1 is slated for release on Wednesday of next week. GDP is expected to expand 0.4 percent on a sequential rate and 1.8 percent at an annualized rate. This would be an improvement from the 0.3 percent quarter-over-quarter rate and 1.2 percent annualized rate in Q4 2016. Economic growth appears to be strengthening to begin 2017 as a result of a relatively weak yen and strong global demand, which help the Japan's vital export sector. Exports in March rose 12.0 percent, the fasted pace in over two years, coming at the heels of 11.3 percent growth in February.

Japan's Tankan index for large manufacturers in Q1 jumped to its highest level since Q4 2015. Moreover, the Bank of Japan's accommodative monetary policy seems to be supporting economic activity. We expect the Japanese economy to expand 1.2 percent in 2017, in-line with the consensus expectation.

Previous: 1.2% (Annualized) Wells Fargo: 2.3% Consensus: 1.8%

Canada CPI • Friday

Canadian CPI inflation for April is set to be released next Friday. Inflation cooled to 1.6 percent in March from 2.0 percent in February, year over year. March's rate landed below the midpoint of the Bank of Canada's (BoC) target range of 1 percent to 3 percent. On a sequential basis, prices actually declined 0.2 percent in March from a month earlier – a slight moderation from February's 0.3 percent slide. Canada's economy has been gaining momentum to begin 2017, helped by a rebounding energy sector that is enjoying higher oil prices. This, in turn, should put upward pressure on prices. We expect CPI inflation to average 2.3 percent in 2017 and 1.9 percent in 2018.

The BoC held its target rate for the overnight rate steady at 0.5 percent, expressing guarded optimism in its statement. In its April monetary report, the BoC revised its inflation expectations upward to 1.9 percent in 2017 and 2.0 percent in 2018.

Previous: 1.6% (Year-over-Year) Wells Fargo: 1.3% Consensus: 1.8%

Point of View

Interest Rate Watch

Elections and Market Economics.

Elections impact market expectations and certainly have altered prices thereby creating a political premium to markets independent of economic fundamentals. The challenge for investors is that political actions do alter market prices independent of any economic actions such that the fundamental values are obscured—at least for a short time.

Over the last year there have been interesting moves in the benchmark bond rates (top graph) and the euro/dollar spot rate (middle graph) that reflect expectations and the interaction of financial markets on a global scale.

Benchmark Bonds: A Political Barometer

In the top graph, the pattern of ten-year yields corroborates the politics/market pricing interaction. With the election of Donald Trump, the ten-year US-German and US-French spread widened out as expectations for economic policy actions and thereby more rapid economic growth took center stage. However, since the inauguration yield differences have declined as the realization that policy initiatives will take time and are likely to be moderated in scale as the legislative process moves forward. Tax cuts and fiscal stimulus through infrastructure spending will take time. Reflect on the observations that President Reagan's tax program did not pass Congress until August of his first year. The anticipation of the FOMC's increase in the funds rate in March provided a short-term boost to the benchmark rate but did not alter the broader downtrend to a level just above the pre-election level.

Euro/Dollar Spot and Economic Expectations: Caught in the Political Vortex

As illustrated in the middle graph, the euro/dollar exchange rate also exhibited a sharp reaction, in the short run, to the election and anticipation of economic change. Moreover, like benchmark yields, the exchange rate has drifted back toward pre-election levels. Finally, the U.S. PMI index has moved up and now back down as policy expectations have adjusted.

Credit Market Insights

Positive Attitudes Toward Housing

Earlier this week, the Federal Reserve Bank of New York released the results of its 2017 SCE Housing Survey which sheds light on consumers' expectations, behaviors and experiences related to home buying. The survey showed that more home buyers are expecting home prices to increase on a oneand five-year outlook. Moreover, a growing share of households still views owning a home as a sound financial investment.

That said, consumers' expectations for an increase in future mortgage rates have also increased, rising to 5.6 percent from 5.2 percent in 2016. Furthermore, sixty-five percent of renters still view obtaining a mortgage as difficult, but thought credit access was becoming easier. That said, tightening credit standards and rising mortgage rates (though still low) could make it more difficult and expensive for some to purchase a home.

What is encouraging is that renters are optimistic about their home buying prospects with 55.2 percent of those surveyed indicating that they will own a home at some point in the future. In fact, first quarter data for household formations showed the share homeowners rising to its highest level since Q3-2006, signaling that an increasing number of households are choosing home owning over renting.

With attitudes toward home buying remaining positive and more renters looking to own, we expect housing starts to reach 1.26 million units in 2017 and 1.35 million in 2018.

Topic of the Week

Emmanuel in Élysée

On May 7th the people of France elected 39 year old Emmanuel Macron as the leader of France, decisively defeating far-right leader Marine Le Pen (top chart). Having never held elected office, questions have risen over whether he can live up to his lofty campaign promises, which include significant economic reform. In his acceptance speech, Macron acknowledged the divisions and doubts disturbing France, but made a pledge to defend all peoples of France and Europe, making note of the common destiny of the European continent. Macron's staunchly pro-Europe stance stands in direct contrast to the rhetoric of his opponent.

Macron's pro-market agenda includes cutting regulation and improving education to boost competitiveness. Macron wants to cut 120,000 public sector jobs and take further measures to stabilize public finances. Moreover, reducing the unemployment rate to seven percent, from its current 10.1 percent level, is an objective of his administration. Other potential reforms include reducing the corporate tax rate to 25 percent from its current 33.3 percent rate. A 50-billion-euro investment program targeting specific industries such as renewable energy and transportation was also floated on the campaign trail. However, his reformist agenda could be undermined if he is unable to secure a favorable result in the parliamentary elections in June. Picking up seats in these elections should aid his legislative goals.

Macron is inheriting a French economy that is failing to gain traction and one that does not seem likely to break out any time soon. French GDP expanded just 1.2 percent in 2016 and has averaged just 0.8 percent on an annual rate over the past 5 years. Recently released GDP data for Q1 suggest the economy also started off 2017 on weak footing. GDP growth was just 0.3 percent on a sequential basis, and was just 0.8 percent, year over year (bottom chart). Macron's economic goals will likely be challenged by the weak French economy. However, consumer sentiment in France is rising, a signal that Macron has the people of France's confidence.




Global oil markets are still not stabilized. After a week of price shocks, in which analysts have suggested that crude prices could be hitting the $40 per barrel mark soon, prices are up again. Analysts are still not able to predict markets, with exception of Tanker Trackers or ClipperData. The media continues to hit on OPEC, questioning its overall power. A bearish sentiment rules the sector while traders seem to not be paying any attention to global developments, such as the growing willingness of OPEC and non-OPEC producers to extend the production cuts. The geopolitical risk premium (after the missile attack on Syria) seems to be absent in the majority of the analyses, something which is totally out of order when looking at the current geopolitical situation in the MENA region or North-East Asia.

By painting a bearish environment, which is not based on facts but rather on the already very questionable gut-feelings of the financial sectors, bulls have been put in a corner or are hiding behind closed doors. This could be changing very quickly, as fundamentals are stabilizing, and geopolitical risks increase. Trump’s erratic behavior, combined with Putin’s power projections or North-Korea’s warmongering, should be enough to put a risk premium on crude oil and gas (LNG) than currently is the case. The heating up of the Saudi-Iranian conflict also seems to reach its zenith.

Still, the market is watching OPEC’s struggling production cut impact on the market, based on historically high storage volumes in the U.S. and other OECD countries. It looks as if all analysts have become Calvinists, “The Glass is always half empty”. Reality shows that we have come from a much more detrimental situation, where the glass was almost empty, now the adagio should be “The Glass is half Full”.

Even that OPEC’s optimism, as presented by Saudi Minister of Energy Khalid Al-Falih at Davos in late January, when he stated that the OPEC production cut agreement as working so well cuts could be phased out in June, has not yet materialized fully, the green sprouts (of the impact of the agreement) have already grown into a young tree. Yes, U.S. shale oil has partly shredded a possible OPEC cut phase out, but so far, this has not resulted in higher (floating) storage volumes worldwide. This week’s EIA report surprised the market, as the latter reported a much higher than expected stock draw of U.S. storage volumes than expected. On 10 May the EIA said U.S. inventories fell by 5.2 million barrels last week vs. the 1.8 million barrel decline analysts expected. Crude oil prices veered back again.

Market sentiment (especially among hedge funds) remains negative, even after crude prices rose and stocks drew lower. Bloomberg reported that OPEC should be digging in for a long war of attrition against shale. The latter could be partly true, if U.S. shale operators and investors are able to counter increased drilling rig costs, higher material costs and a strong need for continuing investments. The count on this is however still out, as reports are emerging about price pressure.

An attrition war, which will be costly for both sides, could be in the offing. OPEC and major non-OPEC producers, such as Russia, should be bracing themselves for a continuation of the current production cut strategy for a pro-longed period of time, for sure into 2018. There has however been a major change in risks for both sides. When Saudi Arabia started its “War on Shale”, the Kingdom did not expect the costs be as high, but reality has hit them hard. After several years of struggling, Riyadh and a majority of OPEC members have understood that times have changed permanently. The oil market has become really global, shale has pushed the U.S. back into the lead. A war of attrition the coming years will not be impacting Saudi Arabia as much as it did two years ago. Structural changes in spending patterns of the Arab governments and drive for economic diversification has made countries such as Saudi Arabia and the UAE, more resilient to crude oil price pressure. At present, the Kingdom and its Gulf counterpars are more able to keep pressure on shale oil than ever before. The last financial reports on Saudi Arabia, UAE and Kuwait are showing much lower budget deficits already.

The main risk for non-U.S. producers (OPEC-Russia) is not production volumes, but the role of financial institutions. As was the case in 2014, shale oil producers have been hedging heavily for 2017-2018, or even 2019. The latter will give U.S. shale oil enough breathing space to continue the current surge no matter what other oil producers will do. The real confrontation between OPEC (and Russia) and shale is expected to be in 2018. Costs could be high, it seems now a question of “who will blink first”.

In the meantime, the production cut agreement extension is gaining ground. OPEC and Russia have openly discussed a potential production cut extension. Other Non-OPEC producers, such as Turkmenistan and Azerbaijan have also expressed support for an extension. Around 1.8 million bpd will be removed from the market, making enough room on the market to counter the expected 1 million bpd of additional shale oil from the U.S., combined with possible additional volumes from Canada and Brazil, there is still a drawdown of stocks in place. World oil demand growth for 2017 has been left unchanged by OPEC in its MOMR this week at 1.27 million bpd.

The above mentioned bearish market picture could change dramatically in the near-term. OPEC’s 25 of May meeting is also surrounded by some possible surprises. Saudi Arabia has been very active lately to get other non-OPEC producers to join the production cuts. A possible change of approach by these parties could also be in the offing. The current agreement is a production cut, even if media always seem to look at it as if it was an export cut. OPEC sources and analysts are currently addressing the options of changes in the deal that would turn it into an agreement that includes also petroleum products and NGLs. The latter could dramatically change the overall picture, even for the U.S, markets, where OPEC members have an ever growing say in downstream operations.

At the same time, still not assessed fully by most, geopolitical risks are increasing. The King Salman-Deputy Crown Prince Mohammed bin Salman – Saudi Minister of Energy Khalid Al Falih power triangle has been able to set up cooperation with Washington. President Trump’s visit to Saudi Arabia is not coincidental, there are several reasons why Trump and King Salman will convene during the OPEC meeting on the 25th. Three reasons have been put forward already in the press, multibillion arms deals, the Iran issue and the Aramco IPO. Mohammed Bin Salman already has openly stated that international arms deals with the Kingdom will have very strict conditions attached to it. The listing of the Aramco IPO on the New York Stock Exchange is currently another boon that Trump would like to get. Also here are major strings attached. Taking a devil’s advocate approach, trying to look into the mind of the Deputy Crown Prince Mohamed bin-Salman, one big string could be a link between the Aramco IPO and arms deal on one side and a more pro-active support of the Trump Administration for a U.S participation in the OPEC-Russia production cut agreement. The latter has already been called for by Saudi Arabia several times.

When looking at the Iranian issue, which could have a major impact on oil prices and production, the fact that Trump is visiting Saudi Arabia at the same time that King Salman has called for a meeting of the Islamic Military Alliance (IMAFT) is not coincidental too. The U.S. president has been even invited to attend, together with President Sisi of Egypt, Turkish President Tayyip Erdogan and the Pakistanis. A military strategy or action against Iran could be in the offing, including U.S. military support.

Taking these issues while assessing the global oil market, a growing list of lights are on green/orange indicating a possible price rally. It is just a question of time (most probably just before 25th of May) that the first sprouts of a price recovery will show. Trump’s statements and actions could be the final push to see oil reach $60.

By Manuel De Monaco for Vix500.com




Before we get into this topic, let me remind readers that crude oil prices are determined on the global market and natural gas & natural gas liquids (“NGLs”) trade on regional markets. The vast majority of upstream oil & gas companies produce a mixture of these three commodities.

Crude oil is one of the most actively traded commodities in the world. Crude oil prices are actually set by speculators that trade oil on the futures market. The oil price you see quoted in the business news each day is the front month NYMEX contract for West Texas Intermediate (“WTI”). If you live in Europe, it is the front month contract for Brent. Supply/Demand fundamentals eventually determine the price of oil, but all energy sector investors know that “eventually” can take a long time to arrive.

Today, the “Right Price” for oil is somewhere in the $60 to $70 per barrel range.

On November 30, 2016 the Organization of Petroleum Exporting Countries (“OPEC”) decided to shore up oil prices by announcing an agreement to curb production for the first six months of 2017. The price of WTI oil immediately jumped $8/Bbl and moved into a range of $50 to $55 where it seemed to stabilize. The speculators went long on oil, expecting the cartel’s actions to show up quickly in the U.S. storage reports. They forgot some important facts about the oil market:

• It takes about three months for oil production in the Middle East to show up in the U.S.
• Demand for crude oil always dips in the first quarter
• There was a lot of oil in floating storage waiting for a price increase

Instead of U.S. crude oil inventories declining in the first quarter, they increased. U.S. shale oil production is on the rise, but the primary reasons for the builds were increased imports and refiners taking less crude oil during their annual maintenance period. A lot of the U.S. imports during the first quarter were just oil being stored offshore in tankers moving onshore. According to the U.S. Energy Information Administration (“EIA”), crude oil imports into the U.S. increased by 53,000 barrels per day from the eight weeks before OPEC announced their agreement to the eight weeks after the announcement.

At the end of April, the “longs” got tired of waiting for the cartel’s production cuts to tighten the oil market and they started closing their positions. There is a “herd mentality” among commodity traders, so the stampede took WTI from $53/Bbl down to under $45/Bbl.

(Click to enlarge)

So what happens next? 

The OPEC agreement to cut production by 1.2 million barrels per day is set to expire on June 30th. There is fear that OPEC will decide to resume their war on the U.S. shale oil producers and flood the market again with crude oil. In my opinion, Saudi Arabia and the other cartel members cannot afford to do that, but the market hates uncertainty and the “Wall of Fear” must be taken out for oil and the stock prices of upstream oil & gas companies to move higher.

Traders are eagerly waiting on news from the May 25th OPEC meeting. That is the day on which the cartel will decide to extend their production sharing agreement beyond June 30th. If the cartel does not extend the agreement, the price of oil will probably drop to around $40/bbl and their economies will suffer. Very few cartel member countries can survive another extended period of low oil prices.

Since Saudi Arabia decided to flood the market with oil in mid-2014, the Saudi Arabian International Reserves Fund has declined by over $200US Billion. That has got to hurt and it definitely has the attention of the royal family.


(Click to enlarge)

On Wednesday, May 10 two things happened that caused a reversal in the price of oil:

• EIA reported a decline of more than 5.2 million barrels in U.S. crude oil storage levels and an additional decline of 1.8 million barrels in gasoline and distillates inventories (primarily diesel).
• Reuters reported that the key members of OPEC have already decided to extend their production agreement to December, 2017 and that there are discussions underway to extend it through next March or June.

Investors should also keep in mind that there is seasonality in the oil market. Each year, demand for crude oil increases by more than a million barrels per day between the first quarter and the third quarter.

(Click to enlarge)

In my opinion, OPEC will extend their production agreement into 2018 (March or June) and the announcement will push WTI over $50/Bbl. Weekly draws from U.S. storage (crude oil and refined products) will continue through the summer, pushing WTI over $55/Bbl. If Russia also sticks to their current production targets (a reduction of more than 300,000 barrels per day), there is a chance we see WTI move into the $60 to $70 range by year-end.

The U.S. shale oil producers don’t need $60 oil to make money. Well level economics are strong in the Tier One areas of the Permian Basin, Eagle Ford, DJ Basin and Central Oklahoma SCOOP/STACK play at $50 oil.

Natural gas and NGL prices are much higher than they were a year ago. In fact, natural gas is up more than 50 percent and most natural gas liquids have doubled in price since dipping under $10/bbl in the first quarter of 2016. Unlike oil prices, which are determined on a global market, natural gas and NGLs trade on regional markets. The U.S. natural gas market is much tighter than it was a year ago and demand will exceed supply by the 4th quarter. Growth in the U.S. petrochemical industry is driving up demand for NGLs.

As investors in upstream oil & gas companies, it is extremely important to know the production mix of the companies you own. Upstream companies provide a breakdown in their quarterly reports.

Conclusion: The outlook for the U.S. upstream oil & gas companies is much better today than it is was a year ago. I follow dozens of upstream companies and their first quarter results were very good, with many of them beating my forecasts and raising their production guidance. Investors in upstream, midstream and oilfield services firms should do well in the months ahead.

By Dan Steffens for Vix500.com



This is one of my long swing trade ideas that is setup for a long term trade and with great return potential. Price action is showing signs of a reversal in the making.

As you can see the chart is very simple and is using basic trend line supports, prz, S&R, candle pattern and historical Fibo support levels. I am very fond of keeping things simple and this is a perfect example of a simple setup. 




 Here are the top five things you need to know in financial markets on Monday, May 15:

1. Saudi Arabia, Russia back 9-month extension to OPEC output deal

Saudi Arabia and Russia, the world's two top oil producers, agreed on Monday to extend oil output cuts for a further nine months until March 2018 in a bid to erode a global crude glut.

In a joint statement that followed an earlier meeting in Beijing, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak said they had agreed to prolong an existing deal by another nine months until March 2018.

The timing of the announcement ahead of OPEC's next official meeting on May 25 and the statement's strong wording sparked a sharp rally in crude prices.

U.S. crude jumped to a two-week high of $49.09 a barrel, up $1.26, or around 2.6%, while Brent gained $1.30 to $52.14, the highest level since May 2.

2. Cyberattack spreads, though at slower pace

Cybersecurity experts said the spread of a ransomware worm dubbed WannaCry had slowed on Monday, but that the respite might only be brief as more people around the world return to work and turn on their computers.

The cyberattack, which lock up computer systems until the victims pay a ransom, has infected more than 200,000 computers in more than 150 countries over the weekend.

Microsoft (NASDAQ:MSFT) on Sunday pinned blame on the U.S. government for not disclosing more software vulnerabilities.

Among the highest-profile corporate victims were, French car manufacturer Renault (PA:RENA) and Spain's Telefonica (MC:TEF).

3. North Korea carries out another missile test

Market participants kept a wary eye on developments in North Korea, which successfully conducted a newly developed mid-to-long range missile test on Sunday aimed at verifying the capability to carry a "large scale heavy nuclear warhead."

The test was a significant advance in North Korea’s drive for an intercontinental ballistic missile capable of carrying a nuclear warhead and reaching the U.S. mainland.

The United Nations Security Council is due to meet on Tuesday to discuss North Korea's latest missile launch, diplomats said on Sunday, which was requested by the U.S. and allies South Korea and Japan.

4. China's economy loses momentum in April

China's growth took a step back in April after a surprisingly strong start to the year, as factory output to investment to retail sales all tapered off as authorities clamped down on debt risks in an effort to stave off a potentially damaging hit to the economy.

Factory output was up 6.5% in April from a year earlier, down from 7.6% in March, and fixed-asset investment rose 8.9% in the first four months of the year, off the 9.2% in preceding four-month period.

Analysts had predicted factory output would grow by 7.1% in April, and tipped fixed asset investment to rise 9.1%.

Meanwhile, Chinese President Xi Jinping over the weekend pledged $124 billion in fresh financing to support its “Belt and Road” infrastructure mega-program.

5. Global stocks rise to multi-year highs as investors shrug off risks

Global stock markets rose on Monday, as investors shrugged off another missile test by North Korea and threats from a cyberattack that spread around the globe at the weekend.

Most Asian indexes closed higher, with MSCI's broadest index of Asia-Pacific shares outside Japan (NYSE:EPP) rising around 0.3% to its highest level since June 2015, while MSCI's emerging markets benchmark (NYSE:EEM) advanced 0.4% to a two-year high.

In Europe, stocks across the continent were mostly in positive territory in mid-morning trade, with London’s FTSE 100 and Germany’s DAX scaling fresh record highs.

On Wall Street, the blue-chip Dow futures inched up 44 points, or around 0.2%, the S&P 500 futures added 3 points, while the tech-heavy Nasdaq 100 futures were little changed.

On the data front, Monday's calendar features a survey on manufacturing conditions in the New York region at 8:30AM ET (12:30GMT). Shortly afterwards, the NAHB housebuilder sentiment survey is due at 10AM ET.

Markets are pricing in around a 70% chance of a hike at the Fed's June meeting, according to Investing.com’s Fed Rate Monitor Tool.




Oil prices extended sharp overnight gains in North American trading on Monday, after Saudi Arabia and Russia agreed to extend oil output cuts for a further nine months until March 2018 in a bid to erode a global crude glut.

The U.S. West Texas Intermediate crude June contract jumped $1.48, or around 3.1%, to $49.33 a barrel by 7:40AM ET (11:40GMT), after rising to $49.45 earlier, the most since April 28.

Elsewhere, Brent oil for July delivery on the ICE Futures Exchange in London rallied $1.54 to a more than two-week high of $52.37 a barrel.

In a joint statement that followed an earlier meeting in Beijing, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak said they had agreed to prolong an existing deal by another nine months until March 2018.

The ministers pledged "to do whatever it takes" to reduce global inventories to their five-year average and expressed optimism they will secure support from producers beyond those in the current deal, the statement said.

Oil futures settled nearly flat on Friday, but still registered their first weekly gain in a month on the likelihood that key crude producers will extend output cuts beyond an agreed-on June deadline.

In November last year, OPEC and other producers, including Russia agreed to cut output by about 1.8 million barrels per day between January and June, but so far the move has had little impact on inventory levels.

A final decision on whether or not to extend the deal beyond June will be taken by the oil cartel on May 25.

Crude sank to a five-month low earlier this month, rattled by concern over increasing U.S. crude output that has shaken investors' faith in the ability of OPEC to rebalance the market.

U.S. drillers last week added rigs for the 17th week in a row, data from energy services company Baker Hughes showed on Friday.

The U.S. rig count rose by 9 to 712, extending an 11-month drilling recovery to the highest level since August 2015, implying that further gains in domestic production are ahead.

Elsewhere on Nymex, gasoline futures for June climbed 3.3 cents, or roughly 2.1%, to $1.613 a gallon, while June heating oil added 3.9 cents to $1.532 a gallon.

Natural gas futures for June delivery slumped 4.6 cents to $3.377 per million British thermal units.




Since January, we have highlighted that a China slowdown was brewing in 2017 (see Why China's Growth is Strong Now – and Why it Will Slow in 2017, 5 January). We are now seeing increasing evidence of this taking place: PMI decreased sharply in April, commodity prices for oil and metals have lost momentum and the Chinese stock market has fallen over the past month to the lowest level in four months

As we have argued for some time, Chinese tightening measures to reign in soaring house prices are set to slow growth in 2017. A 'normalisation' of infrastructure investments after the big boost in 2016 is also set to drive lower activity this year.

While we have been looking for the slowdown to be moderate, an increase in financial stress lately poses a clear downside risk to China's growth this year (see Research China: Financial stress on the rise again, 4 May). In China Daily on 5 May, an editorial started out 'China is in the midst of what proponents are heralding as its harshest crackdown on financial risks in history: a campaign that is by no means a fleeting gesture'. China Daily is state media and tends to represent the views of the leadership. While tackling financial risks in China is important, there is a clear danger that this is taking place when China was already set to slow down and that it is exacerbating the downturn. It comes on top of the risk of protective trade measures from US President Donald Trump in H2, once his trade investigation and steel probe are finished around mid-year. This could hurt Chinese exports.

Boost to global reflation reverses – rising risk for global markets

So, how should a weaker Chinese economy affect the global economy and markets?

1. Lift to global growth reverses: China is by far the biggest contributor to the global economy, driving one-third of global growth. The country was a major driver behind the global recovery in 2016. Commodity exporting emerging markets benefited strongly from both higher volumes and prices and developed markets saw a lift to exports to China and other emerging markets countries. With China slowing in 2017, the lift to the global economy reverses and this is a big reason why we look for a peak in the PMI cycle in H1.

2. From reflationary to disinflationary force: The sharp rise in commodity prices seen in 2016 was pulled largely by higher Chinese activity. With Chinese companies consuming 50% of global metals, China is a major driver of commodity prices. In the past few months, both metal prices and oil prices have declined, which in our view is linked partly to the softer Chinese economy. With the commodity price boost turning into a drag on global inflation, we believe global central banks will lose an important pillar in their mission to push inflation higher on a sustained basis; not least in the euro area, where slack is still ample and wage pressures low (see Research: Euro area wage growth should stay subdued, not supporting core inflation significantly, 5 May).

3. Less support to risk sentiment: A softer global cycle and rising downside risks from China have already had an impact on Chinese stocks, commodity prices and inflation markets, where euro area 5Y5Y breakeven inflation is back at 1.6% – the level reached when the ECB initiated its asset purchase programme in January 2015. So far, though, risk sentiment in the US, Europe and emerging markets has stayed upbeat on the back of strong profit growth and relief that political uncertainty is reduced following the election of Emmanuel Macron as the new French President. We recently turned neutral on equities on a short- to medium-term horizon.

4. Downside pressure on long bond yields: While Fed hikes and a possible change of forward guidance from the ECB are putting upward pressure on bond yields, the disinflationary force from China will put a downward pressure on yields. We believe these two forces will even each other out and expect range-trading markets for some time. Hence, we recommend investors take a tactical approach to acting in the bond market, trading the range rather than having a clear directional bias

5. Headwind for emerging markets assets: So far, there has been very little impact on emerging markets outside of China. Emerging market equities have continued higher despite lower commodity prices and rising stress in China. However, if we are right that the China slowdown will continue this year, emerging market assets will start to face some headwind from this angle. Emerging markets are still a popular carry game among investors, though. Therefore, we stick to our overweight on emerging markets versus developed markets for now, as the carry from higher yields and lower valuation in stocks is attractive and drives flows into emerging markets. However, any sign of spillover from China to other emerging markets should be on the radar screen.

Can the euro area decouple? We don't think so

So far, we have yet to see the same signs of a peak in euro business cycle indicators that we are witnessing in the US and China. Euro PMI has continued to move higher and points to robust growth. The economic surprise index in the euro area is also still high. This stands in sharp contrast to the steep fall that has taken place in the US. This raises the question whether the euro area PMI can continue to decouple.

We doubt this is the case. Part of the impetus for euro area manufacturing is currently coming from the export sector. This factor is likely to fade, with China slowing down. Euro area private consumption has also faced headwinds from a decline in real wage growth moving into negative territory (due to the rise in inflation) after a period of a decent increases in purchasing power when inflation was 1.5 percentage points lower than wage growth. Overall, we look for euro PMI to peak soon and follow the US and China lower. We do not expect a big setback or the recovery to derail but simply believe that the pace will slow a bit. However, in combination with a weaker global backdrop, this means the current very positive picture of the euro area will be less upbeat when we get to the end of the year. With inflation set to decline to around 1.0-1.5% in early 2018, we still believe the ECB will extend asset purchases into the new year but reduce our estimate of the pace to EUR40bn per month



What started with market sound and fury—FBI director James Comey's firing by U.S. President Donald Trump—fizzled into much ado about nothing but noise.

DXY 15-Minute Chart

DXY 15-Minute Chart


Yesterday, after the Dollar Index opened with a dramatic falling gap, erasing half of the previous session’s gains, it scaled right back up to its full measure, where it had been before the news broke.

At the same time, while S&P 500 futures slipped after the announcement, the S&P 500 achieved a higher close than the previous session, eyeing its last record close. The VIX remains near Monday's low, at 10.2, its lowest point in 24 years.

Asian markets advanced, some to new records, while European and US markets have slipped. South Korea's KOSPI reached a new record, getting over what some may have considered disappointment at the election of liberal Moon Jae-in as President. During the campaign he signaled he wants to improve relations with North Korea rather than work more closely with the US.

Japan's Nikkei 225 neared the 20,000 level. Even Chinese equities joined the party and erased earlier losses. Like Asian markets—but contrary to the direction of western markets—gold advanced. This was the first time in seven days the yellow metal saw an upmove. Oil continued to climb.

WTI Daily

WTI Daily


As of this morning, oil has been able to hold on to its biggest gains of the year, after US crude inventories declined by 5.25 million barrels, double what had been forecast. It was its biggest drop in stockpiles for the year and a fifth-weekly decline from record high inventory levels.

Today, oil futures added 0.5 percent to yesterday's whopping 3.2 percent gain, the most in five months. This furious bounce comes after the commodity plunged last week, dropping to its lowest levels since OPEC and NOPEC producers, including Russia, agreed to—and actually honored—unprecedented production cuts, back in November.

The only downside for oil bulls is rising US production, which climbed to its highest level since 2015. The US's Energy Information Administration estimates production will hit a new record in 2018. In an effort to blunt rising supply, and more significantly, keep prices from falling, OPEC and friends indicated they are prepared to keep the November deal in place into 2018.

The $4.6 trillion question – the current value of daily oil production – is whether non-US oil producers are willing and able to continue cutting, even as US companies profit at their expense.

Yesterday’s After-Market Earnings

FOXA Daily

FOXA Daily


Twenty-First Century Fox (NASDAQ:FOXA) Reported Q3 '17

  • Ad sales fall absent February football finale
  • Adj. EPS 0.54c to beat est. 48c, while rev. $7.56b missed est. $7.68b, but up 5% YoY due to more TV advertising, especially from Super Bowl LI.
  • CEO James Murdoch expects pay-TV fees and cable ad growth this quarter
  • Technical Analysis: Fell below uptrend line since September on May 3, but found support of 200dma, till yesterday, when it closed below. After earnings release, spiked to $29 in the after-market but came crashing down to $26.50. Twice tried but couldn’t overcome $28 and settled at $27.08. This represents an asset with considerable downward pressure.

WFM Weekly 2013-2017

WFM Weekly 2013-2017


Whole Foods Market Inc (NASDAQ:WFM) Reported Q1 '17

  • Met expectations with EPS 37c on $3.74b rev.
  • Same-store sales beat expectations, falling only 2.8 percent
  • Company appoints five new board members and CFO
  • Shares rise 3.5 percent to $37.51 but settle at $37.26
  • Technical Analysis: After its decline from its record high of $65 and a crossing below of its uptrend line since post financial crisis, it had been unable to get back over the $35 level until April 20 when it reached a high of $37.33, its highest since July 2015. Since then it has been ranging in the $36-$37 level. Yesterday, it closed at $36.25, its lowest close since the start of the month. The price is now more likely to retest the $37 level.

Today’s Pre-Market Earnings

Macy's Daily

Macy's Daily


Macy’s (NYSE:M) Q1 '17

  • Consensus has a same-store sales decline of 3.2 percent
  • Real estate monetization is the core of 2017. At the beginning of the year, it announced it would close 68 stores by now, part of a previous announcement of the closing of 100 stores. It has already monetized $673 million in real estate and is now looking at its Herald Square flagship in Manhattan.
  • Latest earnings preview of Retail-Wholesale sector expects a 2.2 percent total earnings decline, even as earnings expected to rise 3.3 percent.
  • Consensus sees EPS falling 13% to 35c, down from 40c YoY, on rev. $.547b
  • Options on the stock have been three times the normal volume, as options traders priced in a 6.5 percent fluctuation in the share price
  • Technical Analysis: The price had reached $27.73, the lowest since the post financial crisis boom. The price closed yesterday at $29.34. For the last year, every time the price reached the $30 level it bounced back up. These are the lowest prices since 2011. However, in the short-term, since March, the price was bound in the $28-$30 range. Yesterday it reached for the first time during the range the 50dma and closed with a bearish shooting star. It reached a high of $29.83 but closed only at $29.34. The resistance of the 50dma, confirmed by a shooting star, at the top of the range, suggests a return to its bottom, at $28.

Upcoming Events

  • New York Fed President William Dudley will give a speech in Mumbai, a chance for investors to further assess U.S. monetary policy.
  • The Bank of England on Thursday publishes its interest-rate decision and quarterly Inflation Report.

Market Moves

Stocks

  • The MSCI Asia Pacific index gained 0.27 percent to 150.24, heading to the highest close since June 2015. Japan’s TOPIXrose 0.1 percent, while the Nikkei climbed 0.3 percent to 19,961.55.
  • South Korea’s KOSPI advanced 1.2 percent to a fresh record, erasing Wednesday’s declines following the presidential election. The gauge jumped 2.3 percent on Monday.
  • The Shanghai Composite rose 0.3 percent, reversing earlier declines. The gauge fell for six of the past seven days as investors assessed regulatory intervention in the country’s financial markets. The Hang Seng added 0.5 percent.
  • The Stoxx Europe 600 fell 0.1 percent, after gaining 0.2 percent Wednesday to the highest level since August 2015.
  • Futures on the S&P 500 slipped 0.1 percent after it climbed 0.1 percent Wednesday, closing at an all-time high.

Currencies

  • The yen rose 0.1 percent to 114.16 per dollar, after declining for nine of the past 10 sessions. The Sourth Korean won jumped 0.7 percent. The euro added 0.1 percent to $1.0876. The Bloomberg Dollar Spot Index was flat.
  • The kiwi fell 1.2 percent to 68.57 U.S. cents. The Reserve Bank of New Zealand kept its benchmark rate unchanged and said it will keep rates there for an extended period in expectation that inflation will slow. Many observers had expected the central bank to move to a tightening bias after inflation picked up much more quickly than forecast.
  • The Canadian dollar dropped 0.4 percent after Moody’s Investors Service downgraded shares of six Canadian banks.

Bonds

  • The yield on US 10-year Treasury notes fell two basis points to 2.40 percent, after rising for the past three sessions.
  • New Zealand benchmark yields slipped five basis points to 3.02 percent, while those on 10-year Australian notes were little changed at 2.65 percent.





U.S. Review

The Economic Narrative Carries into Q2

  • The ISM manufacturing index dipped in April but remained firmly in expansionary territory, while its services counterpart rose to a solid 57.8 reading.
  • At the conclusion of the FOMC's May meeting, the committee chose not to raise the fed funds rate. Language in the policy statement, however, signaled that the Fed views the Q1 economic slowdown as transitory, potentially teeing up a rate hike in June.
  • Employers added 211,000 new jobs in April, topping expectations. Both the U-3 and U-6 unemployment rates fell to cycle-lows, but wage growth was slower than expected.

The Economic Narrative Carries into Q2

Economic data released this week contained some of the first information available for Q2. To kick off the quarter, the ISM manufacturing index showed factory sector activity had cooled a bit in April. The reading of 54.8 was the third consecutive decline and was lower than consensus. At 54.8, however, the index remains firmly in expansion territory and signals a clear improvement relative to the past couple years (top chart). The multi-year high of 57.7 reached in February would be consistent with a much-stronger rate of growth than we have been forecasting, so the return to a more sustainable pace of expansion suggested in this report for April is consistent with our forecast.

On Wednesday, the ISM's service sector counterpart topped expectations, rebounding to 57.8. The new orders index climbed 4.3 points to post its current cycle-high of 63.2. Demand was boosted by better global economic conditions, as new export orders jumped 3 points to 65.5, just a half point below the alltime high for the series. Taken together, the underlying trend for these two indicators suggest that the slowdown in economic growth in Q1 was transitory and a rebound in Q2 is in the offing.

Labor productivity data were also released this week. Over the long-run, economic growth is driven by two factors: the growth in the labor force, and the growth in the productive capacity of these workers. As illustrated in the middle chart, labor productivity growth has been persistently slow in recent years. The data for Q1-2017 largely reinforced this narrative. Nonfarm productivity declined at a 0.6 percent annualized rate in Q1. The year-overyear pace remained steady at 1.1 percent. Amid slow productivity growth and an aging population, achieving sustainable economic growth faster than 2-2.5 percent a year will be challenging.

Against this backdrop, the Fed refrained from raising the fed funds rate at its May meeting. Similar to our view, the Fed's policy statement reinforced the belief that the slowdown in economic growth in Q1 was transitory. In addition, the Fed tweaked its view on inflation, choosing to focus on the recent 12-month change in various inflation measures rather than the performance over recent quarters, as was done following the March meeting. Both the headline and core PCE deflators ticked down on a year-ago basis in March, but at 1.8 percent and 1.6 percent respectively, inflation remains close to the two percent target. The bottom line is the Fed still sees economic activity, the labor market and inflation on course with its expectations, which positions the Fed to raise the fed funds rate in June.

Finally, the employment report this morning showed 211,000 new jobs were added in April. Job gains were generally broadbased, and both the U-3 and U-6 unemployment rates fell to new cycle-lows. Furthermore, despite a slight decline in the total labor force participation rate, the participation rate for prime-age workers actually rose in April, keeping a broader upward trend intact (bottom chart). However, wage growth disappointed relative to consensus. On balance, today's report is supportive of a June rate hike, but the tepid acceleration in wages will likely reinforce the Fed's cautious approach to tightening policy.

U.S. Outlook

Import Prices • Wednesday

Lower prices for imported energy weighed on headline import prices in March, which declined 0.2 percent from February. March was the first decline in four months as the recovery in oil prices slowed. Excluding petroleum, import prices rose 0.2 percent on the month amid strengthening in the business sector, with rebounds in industrial supplies and capital goods driving the nonfuel import price recovery. Revisions to earlier data revealed some easing in the rate of goods deflation in the CPI may be in the offing. Exporters continue to benefit from improved global demand and a more stable dollar allowing further export price increases. Export prices increased in March at the strongest year-over-year pace since 2012. We expect headline import prices declined again in April on continued softness in petroleum prices.

Previous: -0.2% Wells Fargo: -0.1% Consensus: 0.2%

CPI • Friday

Gasoline prices played a large role in March's 0.3 percent decline in the headline CPI. That said, the core CPI also unexpectedly declined in March as consumers paid less for wireless telephone services on the month. Shelter and medical inflation also eased in March, which usually provide a greater lift to core services prices. Core goods declined 0.3 percent on softer apparel and transportation prices. The decline in apparel prices looked to be payback from early outsized gains, but softness in transportation goods prices is unlikely to abate, particularly as the glut of used vehicles coming off lease this year weighs on vehicle prices.

We expect both the core and headline CPI to rise 0.2 percent in April as much of the softness in March could be attributed to oneoff factors, such as the drag from the unusually large decline in wireless services on core services inflation.

Previous: -0.3% Wells Fargo: 0.2% Consensus: 0.3%

Retail Sales • Friday

We expect retail sales bounced back in April after a disappointing start to the year. Retail sales declined 0.2 percent in March after falling 0.3 percent in February. The declines were largely due to the auto sector, as retail sales ex auto were flat both months. Sales were also likely affected by unusual weather patterns affecting the timing of purchases at home and garden stores. Gasoline stations and food and drinking places also saw sales decline in March.

Control group sales, used to calculate GDP, were volatile in recent months, and we know from the first look at Q1 GDP that personal consumption did indeed soften in the first three months of the year. That said, underlying fundamentals support our call for a rebound in coming month due to the strong job market and income gains. However, we doubt the auto sector will be as supportive as in recent years as sales likely hit its peak in 2016.

Previous: -0.2% Wells Fargo: 0.5% Consensus: 0.6%

Global Review

Mixed Data on the Global Economy

  • We received mixed data from the global economy in April with the Caixin China manufacturing PMI coming in at a lower level than expected, 50.3, versus expectations of 51.3 and lower than the previous month.
  • Meanwhile, Eurozone GDP expanded at a 0.5 percent clip, not annualized (which represents a 1.8 percent annualized rate), in the first quarter of the year and in line with consensus expectations. On a year-earlier basis, real GDP was up 1.7 percent.
  • The Brazilian industrial production index for March also disappointed when it stumbled 1.8 percent versus February, seasonally adjusted.

Mixed Data on the Global Economy.

We received mixed data from the global economy in April with the Caixin China manufacturing PMI coming in at a lower level than expected, 50.3, versus expectations of 51.3 and lower than the previous month. The lower reading was disappointing at the start of the second quarter. Furthermore, the services PMI was also lower than the March reading, down to 51.5 versus 52.2 in March. That is, this first reading from the manufacturing and service sectors from the second largest economy in the world does not bode well for overall economic growth. Having said this, both indices remained in expansion territory even though the manufacturing index was very close to the 50 demarcation line.

Meanwhile, the Eurozone expanded at a 0.5 percent clip, not annualized (which represents a 1.8 percent annualized rate), in the first quarter of the year and in line with consensus expectations. On a year-earlier basis real GDP was up 1.7 percent. Thus, growth in the Eurozone agreed with expectations and has remained relatively stable recently, which is good for overall global economic growth but not a growth rate that could set off stronger economic growth across the global economy.

At the same time, markets were celebrating the fact that all the political pundits gave Emmanuel Macron an edge over Marine LePen during the first and only French presidential debate ahead of this weekend second round presidential elections. Thus, today, markets are betting that Mr. Macron will be elected president of France and the European Union will probably breathe a sigh of relief as Mr. Macron supports France's continuity in the European Union and in the euro area. Furthermore, if Mr. Macron wins, the country will prevent an extreme rightist party from taking over the presidency in the second largest country in the Eurozone.

Meanwhile, in this hemisphere, the Brazilian industrial production index for March disappointed when it stumbled 1.8 percent versus February, seasonally adjusted. On the positive side, industrial production still managed to increase 1.1 percent versus a year earlier and non-seasonally adjusted. However, this year-over-year comparison is not a very good gauge of the conditions of the sector because it is comparing a full month of industrial production this year with March of last year, which was shorter because of Easter week. At the same time, manufacturing production was also very weak, down 1.7 percent versus February and up only 0.2 percent compared to March of last year.

In Mexico, gross fixed investment in February disappointed once again, coming in lower by 0.8 percent after falling 1.8 percent in January, both seasonally adjusted. On a year-over-year comparison, gross fixed investment in Mexico dropped 3.1 percent, the largest decline since June of last year. Thus, if the better than expected flash result for first quarter GDP is confirmed later this month it will mean that other components of GDP must have been very strong and/or that gross fixed investment recovered strongly in March to close the quarter.

Global Outlook

Canada Housing Starts • Monday

Canadian housing starts raced ahead of market expectations of a 215,000-unit increase in March and instead jumped over 18 percent over the month to a 253,200-unit pace. March's starts marked the highest level since September 2007, with much of the increase coming from multifamily homes and condominiums in urban areas, which rose 30.2 percent to a 160,989-unit pace. Single-family homes, on the other hand, rose by a more moderate 3.1 percent to a 74,685-unit pace. Housing has been a main driver in Canada's economy over the past several years due to historically low interest rates and larger metros, such as Toronto and Ottawa, seeing their housing markets heat up. That said, consensus is expecting some payback from March's surge, and looks for starts to have come back down to a more modest 220,000-unit pace in April.

Previous: 253,200 Consensus: 220,000

U.K. Bank of England Rate • Thursday

Economic growth in the U.K. downshifted in Q1, weighed down by softening in the service sector which suggests that consumer spending started the year on a weaker note. In addition, CPI inflation has started to pick up, helped by the rebound in energy prices, and core CPI has moved higher as well. The jump in prices has started to eroded real income growth and reduced growth in consumer spending, which we expect to remain a headwind for the U.K. economy.

At the Bank of England's meeting next week, we look for the Monetary Policy Committee (MPC) to keep its bank rate unchanged at 0.25 percent and remain on hold through 2017 due to the slowing growth and rising inflationary pressures the economy is facing. Although shifting inflation dynamics could cause some of the MPC members to sanction a rate hike sooner rather than later, the current accommodative stance will likely remain in place.

Previous: 0.250% Wells Fargo: 0.250% Consensus: 0.250%

Mexican Industrial Production • Friday

Mexican industrial production (IP) increased 0.1 percent on a monthly basis in February as mining output weighed on overall growth. Construction activity rebounded over the month, rising 0.9 percent and rose an even stronger 3.0 percent year over year. Meanwhile, the mining sector has declined even further, falling 13.7 percent on a year-ago basis. Conversely, growth in the manufacturing industry remained relatively stable at 1.1 percent. Mexico's preliminary Q1 GDP, which printed earlier this week, showed that the secondary sector (includes industrial production) contracted 1.3 percent on a year-ago basis.

Other data on the docket next week include consumer price inflation, which has been running hot lately, rising to 5.4 percent year over year. Markets look for it to rise to 5.8 percent in April.

Previous: -1.7%

Point of View

Interest Rate Watch

Looking Past the First Quarter

The Federal Reserve went out of its way to downplay the slowdown in first quarter real GDP growth, stressing that the rate of growth has slowed rather than economic activity had slowed. Their policy bias remains toward gradually nudging interest rates higher and the financial markets are currently assigning a better than 90 percent probability that the Fed hikes the federal funds rate by a quarter point at the June 13-14 FOMC meeting.

The policy statement from the May meeting contained few surprises. The explanation of current economic conditions essentially stressed that the labor market is continuing to improve solidly and that business investment had firmed. The statement did note that household spending had increased "only modestly' but went on to say that the underlying fundamentals supporting consumer spending remained solid. The bottom line is that Fed will continue to tighten as long as employment conditions remain strong.

The April employment numbers were right in line with the Fed's expectations. Not only did nonfarm employment bounce back, as was expected, but the unemployment rate also fell to 4.4 percent. Job gains were fairly broad based and aggregate hours worked rose by a solid 0.5 percent, suggesting that real GDP will also bounce back in the second quarter.

The drop in the unemployment rate to 4.4 percent may set off concerns that the Fed will accelerate efforts to normalize interest rates. Right now, such a move would be premature. While the unemployment rate has surprised to the downside, wage and salary gains show very little sign of strengthening.

One possible explanation for the lack of wage growth is that the labor force participation rate for prime-working age persons is still well below its historic norms. This may be changing. There has been a notable acceleration in hiring in full-time positions and slowing in part-time jobs. This shift has coincided with an increase in household formations and home ownership. The Fed may not want to stomp this out just as it is getting started.

Credit Market Insights

Mortgage Credit & Rates Hold Steady

Mortgage credit availability was relatively unchanged in April, according to recently released data from the Mortgage Bankers Association's Mortgage Credit Availability Index (MCAI). After rising to a fresh cyclehigh in March, the MCAI fell a slight 0.2 percent to 183 in April. A decrease in the MCAI indicates that lending standards are tightening, while an increase signals they are loosening. Despite the modest dip, the indicator of mortgage credit access remains on an upward trend and has generally risen since hitting a bottom in 2011. That said, on a historical basis, mortgages are still relatively difficult to obtain. While stricter lending conditions have diminished default rates, the mortgage market's tight credit box has proved to be a headwind to the current cycle's housing recovery.

Meanwhile, mortgage rates—another measure pertaining to borrowers' ability to purchase a home—held fairly steady this week. According to Freddie Mac, the 30-year conventional fixed mortgage rate edged down a slight 0.1 percentage point to 4.02 percent during the week ending May 4. The 30-year mortgage rate has been trendless near 4 percent for the past four weeks. Against the backdrop of anticipated Fed tightening, we expect a modestly higher interest rate environment in the near-term. That said, we expect housing demand to trump the modest increase in interest rates, and look for home sales to continue to trend higher over the course of the year.

Topic of the Week

Shutdown Showdown Ends Quietly

Legislators agreed this week to a budget deal that funds the government through the end of fiscal year (FY) 2017, which ends Sept. 30. The agreement is largely devoid of the more controversial policy proposals that had the potential to derail the bill. Deep cuts to nondefense discretionary spending were avoided, and no funds were appropriated for a border wall. Defense spending received a $15 billion boost, although this was a smaller increase than what the White House had requested.

However, with the current fiscal year already more than halfway complete, policymakers will need to revisit this issue in the near future. In just five months, policymakers will once again need a plan to fund the government for FY 2018. Furthermore, the debt ceiling has the potential to add another wrinkle to the next round of negotiations. The spending bill agreed to this week does not increase the debt ceiling, which was reestablished on March 15. For the time being, this is not a major problem as the Treasury has the capacity to take "extraordinary measures" to remain solvent through the fall. A better understanding of how long the Treasury can operate under these circumstances will become clearer as spring tax collection data become available. The timeline suggests that this fall policymakers will face the dual challenge of passing a budget and raising the debt ceiling, a challenging lift during a period when legislators hope to be in the middle of a tax code rewrite.

In addition, legislators also revived their efforts to repeal elements of the Affordable Care Act (ACA). The passage of the ACA repeal bill is a significant accomplishment for Republicans, but it is important to remember that this is just one bar among several more that must be hurdled. The bill now heads to the Senate, where its fate is far from clear and Republicans hold just a two seat majority. If the Senate manages to successfully craft its own version, a conference committee between the two chambers would then have to hash out the differences. The more time spent on an ACA repeal bill, the less legislative calendar time will be free to tackle tax reform.




HIGHLIGHTS OF THE WEEK

United States

  • The past week was action packed with economic data and events in Washington. Data largely supported the view that the U.S. economy will bounce back from its winter weakness.
  • The job market sprang back into action in April, enabling investors to heave a sigh of relief that the fundamentals remain in place for a Q2 rebound. The Fed expressed its confidence in the economy in its statement accompanying its stand pat rate decision.
  • Still, weak auto sales and a recent loss in inflation momentum suggest the U.S. economy is not entirely out of the woods. The Fed will be watching the data closely in the coming weeks before the case for a June hike is cemented.

Canada

  • An 8% drop in crude oil prices led the S&P/TSX to a 6-week low and took the loonie below 73 US cents for the first time in over a year.
  • The Canadian economy added just 3k jobs in April. The unemployment rate fell to 6.5% as 45k people left the workforce. Wage growth slowed to a record low of just 0.5% y/y.
  • Auto sales slipped 1.6% y/y in April, but this follows a record breaking quarter. Sales remain quite elevated relative to historical norms.
  • Exports bounced back in March, helping to narrow Canada's trade deficit. However, net trade will still be a drag on growth during the first quarter.

UNITED STATES - ECONOMY SHOWING SIGNS OF SPRING THAW

From Washington to Wall street, there was no shortage of news for investors to digest this week. Data largely supported the view that the U.S. economy is bouncing back from its winter weakness. Markets have one eye turned on policy shifts in Washington too, where the GOP took baby steps towards repealing and replacing Obamacare (ACA). The revised American Health Care Act (AHCA) passed the House by a very narrow margin, but faces a bigger challenge in the Senate.

Investors heaved a sigh of relief on Friday as the job market bounced back in April, bearing out the Fed's confidence in the economy expressed in Wednesday's rate announcement. Payrolls advanced 211k jobs in April and the unemployment rate fell to 4.4% - the lowest level since 2007. Broader measures of labor market slack also declined, with the broadest U6 measure (including discouraged workers and involuntary part-timers) falling to 8.6%, just 0.2 percentage points off its pre-recession level (Chart 1). Average hourly earnings rose 0.3%, as expected in April. That left wages up 2.5% over a year ago, not yet flashing red, but is still sufficient to provide real gains in purchasing power (Chart 2). This should flow through to consumer spending in the months ahead, providing the impetus for stronger economic growth.

As expected, the Fed kept interest rates unchanged on Wednesday and issued a largely status quo statement. It pointed to continued improvement in the labor market, while seeing through disappointing economic growth in the first quarter. The weakness in inflation in March was noted, but one-month's result is unlikely to sway the Fed. As Yellen has continually emphasized, the Fed's path is data dependent. So, members will be watching the data closely over the next few weeks as indicators for the second quarter are released. If the numbers confirm that a second quarter rebound is underway, and that the slowdown in inflation has not become more entrenched, we would expect the Fed to take rates higher in June.

So far this year, measures of sentiment have been more ebullient than the "hard" economic data. Not surprisingly, the ISM Manufacturing index did lose of bit of its postelection optimism in April. We have raised concerns that markets might have been a bit overconfident that Washington could easily implement highly stimulative fiscal policy. While this week, the House finally passed a bill to repeal and replace the ACA, this is only the first step in an ongoing process. Passage in the Senate where the Republican majority is even slimmer, will prove much more difficult.

Passing healthcare reform into law is arguably a necessary pre-condition to making further changes to the tax code. This is because the savings achieved leave room to cut taxes without expanding the deficit. The Congressional Budget Office has not yet scored the new bill, but the previous bill reduced the deficit by over $330 billion over the next decade. This is only about one-tenth of what is necessary to pay for Trump's proposed tax cuts, but it might allow for some reduction in the corporate tax rate. In any case, there is a long road ahead on forging consensus on both the AHCA and eventually tax reform, leaving the potential for further sentiment disappointments in the months ahead.

CANADA - PLUNGING OIL PRICES WEIGH ON FINANCIAL MARKETS

It was a rough week for Canadian financial markets, as the S&P/TSX index and the Canadian dollar were pulled down by an 8% plunge in crude oil prices to US$45 per barrel. The equity market hit a 6-week low, while the loonie fell below 73 US cents for the first time in over a year.

Oil prices have now fallen by 15% in just three weeks, reaching the lowest level seen since November 2016 - right before OPEC members agreed on production cuts. The drop stemmed from concerns surrounding the global supply glut, as efforts by OPEC and a group of non-OPEC countries to scale back production have yet to put a meaningful dent in global stocks. Meanwhile, production elsewhere - particularly in the U.S. - has been on the rise. Indeed, U.S. oil production continues to expand, now sitting at 9.3 million barrels per day - a level not seen August 2015. OPEC will meet on May 25th to determine whether production quotas will be extended past June. Indications from the cartel suggest that they will, however, it appears as though markets are starting to think that bigger cuts will be necessary to bring the market back into balance. Volatility in oil prices is likely to continue as the meeting approaches, moving in response to rhetoric coming from OPEC and U.S. production and inventory data.

On the economic front, data out this week was mixed. The Canadian economy added just 3k jobs in April, all part-time, and wage growth slowed to 0.5% y/y - half of its first-quarter pace and the slowest pace on record. While a disappointing report, it does follow several months of strong job creation.

Auto sales were down 1.6% versus year-ago levels, but the drop comes on the heels of a record-breaking first quarter and is contending with last year's stellar performance when sales topped 200,000 units for the first time in a single month. Needless to say, even with a slight pullback in April, auto sales remain quite elevated. That said, given the remarkable strength seen in recent years, it would not be surprising to see auto sales lose some steam in the coming months.

International trade data showed a bounce back in export volumes in March, while imports edged down slightly. This won't be enough to prevent net trade from weighing on economic growth during the first quarter - thanks to rebounding imports - but it does provide a solid hand off for Q2. Moreover, momentum in exports should continue going forward, as the Canadian dollar remains under pressure and economic activity in the U.S. is set to pick up after a slow start to the year.

This will help underpin the rotation in Canadian growth drivers away from stretched consumers and housing, toward a more balanced growth path. In a report released this week, we noted that stabilization in non-residential investment and a modest improvement in other business investment, combined with a better net trade performance should offset expected declines in housing activity over the remainder of this year, keeping the economy advancing at a decent clip of just under 2%. The Bank of Canada will be looking for such signs of a more sustainable growth path before moving off the sidelines.




UBS Group AG (UBSG.S) paid $445 million to settle claims that the Swiss bank sold toxic mortgage securities that helped sink two federal credit unions, a U.S. regulator said on Monday.

The National Credit Union Administration said the payment resolves claims that UBS misled the U.S. Central and Western Corporate credit unions about the risks of roughly $1.15 billion of residential mortgage-backed securities bought in 2006 and 2007.

UBS' payment is on top of $79.3 million it paid last year to resolve similar NCUA claims involving two other failed credit unions. The bank did not admit wrongdoing, the NCUA said.

Erica Chase, a UBS spokeswoman, in an email said: "With today's settlement another legacy matter has been resolved."

The NCUA said it has recovered nearly $4.8 billion from banks over mortgage securities it said led to the 2009 and 2010 failures of five credit unions.

Some lawsuits targeted banks that sold the securities, while others targeted trustees that allegedly failed to monitor loan servicers or require banks to buy back defective loans.

The NCUA said it uses sums it recovers to pay claims against the Constitution Corporate, Members United Corporate, Southwest Corporate, U.S. Central and Western Corporate credit unions.

Such settlements provide "a measure of accountability for the firms that sold faulty securities," NCUA Acting Board Chairman J Mark McWatters said in a statement.

The NCUA voluntarily dismissed its case against UBS last week in connection with the settlement, court records show.

The case is National Credit Union Administration Board v. UBS Securities LLC et al, U.S. District Court, District of Kansas, No. 12-02591.




U.S. Review

Q1 Growth Comes in a Paltry 0.7 Percent

  • Residual seasonality likely deserved some of the blame in the weak numbers in this morning's Q1 GDP report, and the slowdown in personal consumption was also a major factor. That said, many factors that weighed on consumption were transitory, and business investment has perked up.
  • Other economic data released this week point to an economy on solid footing. The housing market had a strong start to the year but is constrained by lean inventory, as evidenced by new and pending home sales data. Consumers are in high spirits and confident in the economic outlook, particularly in terms of job prospects, according to surveys released this week.

Economic Growth Trips Out of the Gate in Q1

This morning's first estimate of Q1 GDP growth was expected to be on the weak side, as Q1 has tended to be many times over the past decade. Still, residual seasonality in the series does not explain the very weak showing for personal consumption in the first three months of 2017. Personal consumption has been the driving force of GDP growth for much of the past two years as the commodity downturn, slower business investment and slower global economic growth weighed on other components of GDP, while the strong domestic labor force supported solid personal consumption. Given that, the 0.3 percent print for PCE could be cause for concern. We suspect that some of the slowdown was transitory, as warm weather cut utilities consumption in January and February. The auto sector is also less supportive to retail sales as the boom in sales tops out. Another possible factor in soft spending in the first quarter is the later timing of tax returns this year, which may have pushed out some purchases to April. Fundamentals support a bounce back in consumption as the strong labor market supports income growth.

There is little indication spending has hit an inflection point from the consumer surveys, which we look to for hints about future consumer spending. The Conference Board's Consumer Confidence report earlier this week did decline slightly more than expected in April after hitting a cycle-high in March. Its current reading is the second highest. The University of Michigan Survey of Consumer Sentiment was also positive. Confidence has surged since the November election, particularly in the expectations component. Though the surge in attitudes has yet to translate to a surge in spending, we are encouraged by consumers' assessment of their present situation, as consumers report favorable labor market conditions, which bodes well for future spending.

Residential investment was a bright spot in Q1 GDP. Housing has been one area in which soft data and hard data agree. The NAHB/Wells Fargo Housing Market Index has jumped since the election, and new homes sales have followed suit, rising to the second highest current-cycle pace in March. The rise in new home sales surprised consensus, which had expected a softer reading after February's surge. Demand for housing is strong although the supply of homes for sale, particularly for lower priced homes, is lean and buyers face stiff competition. That competition was likely a contributing factor to the softer March print for pending home sales, which measures contract signings of existing properties. Mild weather in January and February likely also pulled forward some activity that usually happens in March. The trend in housing is strong, and the sector is set for an active year as rising interest rates and house prices may prompt consumers on the fence to decide now is the time to buy.

Equipment spending was another bright spot in Q1 GDP as the recovery in business spending continues. Durable goods factory data this week showed solid shipments of core capital goods in March, which are a useful proxy for business investment in the GDP calculations. Core order capital goods orders did slow, which suggests a more moderate clip to start Q2.

U.S. Outlook

PCE Inflation • Monday

Inflation, according to the PCE deflator, the most closely watched measure by the Fed, started the year off strong. After strong gains in the first two months of the year, the year-over-year rate reached the Fed's target for the first time in nearly five years. Inflation looks to have softened in March, however. Energy prices, which lifted inflation in January and February, fell in March. Core inflation is also expected to stay flat following weakness in core goods and an unusually large decline in wireless phone services.

We look for nominal personal income to have risen 0.2 percent in March, but the weaker rate of inflation points to stronger growth in real disposable income. Spending is also set to increase about 0.1 percent amid greater utilities spending and tax returns that were delayed in February.

Previous: 0.1% Wells Fargo: -0.1% Consensus: -0.2% (Month-over-Month)

ISM Manufacturing • Monday

After a turnaround that began late last year, activity in the manufacturing sector looks to have lost some steam. Purchasing managers' indices, including the ISM index, generally edged lower in March, while manufacturing output according to the Fed's industrial production report fell for the first time in seven months.

The pullback follows some of the strongest readings on manufacturing activity in more than two years and suggests activity is settling in at a more sustainable pace. We expect the ISM manufacturing index to have slipped in April to a still-strong 56.6. Improvement in global growth and commodity prices, as well as a relatively stable dollar, all look to underpin a continued recovery in the factory sector.

Previous: 57.2 Wells Fargo: 56.6 Consensus: 56.5

Employment • Friday

Nonfarm payrolls rose by an average of 178,000 jobs per month in the first quarter, but atypical weather and a late Easter holiday led to sizeable monthly swings. After increasing by more than 200,000 jobs in January and February, hiring slowed to 98,000 in March.

With seasonal effects expected to play less of a role in April, we expect payrolls to have risen a more trend-like 190,000. Jobless claims fell both over the survey week and on a four-week average basis in April, consistent with fewer layoffs, while hiring plans edged up in March.

After an unusually large drop in the number of workers reported as unemployed in March, we expect the unemployment rate to tick up to 4.6 percent in April, although the trend remains downward.

Previous: 98,000 Wells Fargo: 190,000 Consensus: 193,000

Global Review

Eurozone: Diminution of Downside Risks?

  • Markets breathed a sigh of relief this week following the first round of the French presidential election. Polls show that the centrist Emmanuel Macron should beat the populist Marine Le Pen in the second round of the election on May 7.
  • The ECB kept its main policy rates on hold this week, but said that the downside risks to the outlook were starting to diminish. The ECB likely will maintain the current size of its QE program for the next few months, but it could announce plans sometime this summer to "taper" further if the economic outlook remains sanguine and/or inflation continues to trend higher.

Eurozone: Diminution of Downside Risks?

Voters in France went to the polls on Sunday April 23 in the first round of that country's presidential election. After the votes had been tabulated, Emmanuel Macron, the candidate of the centrist En Marche! party, and Marine Le Pen, of the right wing National Front, were on their way to face off in the second round. The winner of the run-off election on May 7 will become the next president of France.

Most market participants were relieved that Jean-Luc Mélenchon, the candidate of the Left Party, did not make it into the second round. The fear was that candidates representing the far right and the far left, who both hold skeptical views regarding French membership in the European Union, would make it into the second round. Polls show that Macron should beat Le Pen handily in the second round. Polls obviously can be poor predictors, and anything can clearly happen between now and May 7. That said, the polls for the first round of the election turned out to be quite accurate. If Mr. Macron is elected president on May 7, then a downside risk to the French economy, and more broadly the overall euro area, from a potential unraveling of the European Union and/or the Eurozone will have dissipated.

The European Central Bank (ECB) held a regularly scheduled policy meeting on Thursday, at which the Governing Council kept its main policy rates unchanged, which was universally expected (see chart on front page). In the statement ECB President Draghi read at the beginning of his press conference, the Governing Council stated that risks to the Eurozone outlook "are still tilted to the downside." However, the Governing Council also acknowledged that risks were "moving towards a more balanced configuration." Indeed, the Eurozone economy appears to be on solid footing right now, at least if sentiment indicators are to be believed. The economic confidence indicator in the euro area, which has been trending higher since last summer, rose to a new cycle high in April (top chart).

However, "hard" data generally show that economic growth in the euro area is not quite as strong at present as the "soft" data would imply. Yes, real GDP in Spain rose 0.8 percent (not annualized) on a sequential basis in the first quarter to keep the year-overyear rate of growth steady at 3.0 percent. But, Spain is an outlier. Real GDP in France grew only 0.3 percent sequentially and 0.8 percent year-over-year in Q1 (middle chart). More generally, real GDP in the overall euro area likely rose at a sub-2 percent rate in the first quarter. In other words, the Eurozone economy continues to grow, albeit at a fairly modest pace.

Modest GDP growth has translated into benign CPI inflation. The overall rate of inflation currently stands just below 2 percent (bottom chart). Although the core rate of inflation is lower, it did shoot up from 0.7 percent in March to 1.2 percent in April. In our view, the ECB will continue to buy €60 billion worth of bonds each month for the next few months. Sometime this summer, however, the Governing Council could announce plans to "taper" its bond purchases further if the economic outlook remains sanguine and/or inflation continues to trend higher.

Global Outlook

China Caixin Manufacturing PMI • Monday

The Caixin manufacturing PMI index has been in expansionary territory (above the 50-threshold) since July 2016, and analysts expect this trend to continue. Although the index downshifted to 51.2 in March from 51.7 in February, the consensus forecast is calling for a slight rebound to 51.3 for April.

Last week, Q1 GDP data for China revealed that the Chinese economy expanded 6.9 percent year over year. The notable strength in the secondary industry, which includes manufacturing, boosted the headline number and provided further evidence that economic growth is stabilizing following a gradual deceleration in GDP. The secondary industry accounts for roughly 40 percent of the value added in the Chinese economy. As the second-largest economy, and the world's largest manufacturer, China's Caixin manufacturing PMI will be watched especially closely by markets.

Previous: 51.2 Consensus: 51.3

Brazil Industrial Production • Wednesday

Brazilian industrial production data for March is slated to be released next Wednesday. After decreasing 0.2 percent in January, the index increased 0.1 percent in February. A strong print for March could signal that Brazil is successfully emerging from its eight-quarter long recession. In Q4, the industrial sector of Brazil, which includes mining, manufacturing, construction and utilities production, contracted 2.5 percent, year over year.

Also on the docket for next week is Brazilian trade data, including total imports and total exports for April, both of which are expected to downshift from the prior month. Vehicle sales data for April are also slated for release early next week, a notable metric to gauge the strength of the consumer. Taken together, next week's indicators will be helpful in assessing the strength of the Brazilian economy recovery as it attempts to emerge from recession.

Previous: 0.1% Consensus: 0.0% (Month-over-Month)

Eurozone GDP • Wednesday

Real GDP in the Eurozone rose 0.4 percent in Q4-2016 and is expected to rise 0.5 percent in Q1-2017 to mark the 16th consecutive quarter in which growth has been positive on a sequential basis. But because economic growth has been generally sluggish over that period, inflation has remained subdued, as further evidenced by this morning's release of the CPI.

We forecast that the pace of economic activity in the euro area will gradually gain traction as exports accelerate and as the effects of monetary accommodation make their way through the economy. In our view, the ECB will deem that further policy accommodation is not needed as inflation slowly creeps higher. Policy tightening will likely not be needed either, at least not in the foreseeable future. We look for the Eurozone to expand 1.8 percent and 2.0 percent in 2017 and 2018, respectively.

Previous: 0.4% Wells Fargo: 0.5% Consensus: 0.5% (Not Annualized)

Point of View

Interest Rate Watch

Looking Ahead to the FOMC

With the disappointing first quarter GDP numbers and generally softer economic data in general for March, we do not expect the Fed to make any major changes to policy or its policy statement at this week's FOMC meeting. The policy statement will likely reaffirm the Fed's belief that despite the apparently weak first quarter GDP data, the overall economy is very close to where the Fed would like it to be in regard to full employment and inflation. The bottom line should be that two more quarter point rate hikes are likely this year, which is one more than the financial markets are currently pricing in.

We expect the Fed to look past the most recent stumble in GDP growth. Sluggish first quarter real GDP growth has been an all too frequent occurrence during this expansion, with the current quarter likely marking the fifth time in the past eight years that reported first quarter growth will be the weakest quarter of the year. Given the apparent issues with residual seasonality, the Fed will likely focus more attention on the continued improvement in the labor market and rebound in inflation.

While Q1 GDP growth was disappointing, corporate earnings seem to be coming in at or above consensus expectations, and topline revenues are also coming in on the strong side. We suspect that the improvement in earnings is due to companies working through the earlier appreciation of the dollar, a rebound in oil prices and energy production, and some strengthening in global demand.

Long-term interest rates have remained remarkably well behaved in light of the recent pop in equity markets, as well as higher forecasts for global GDP growth and inflation. The 10-year yield rose slightly following the French election but ended the week right around 2.30 percent. Our take on the split is that stock investors are focusing on more immediate concerns surrounding improved earnings and less geopolitical risk in Europe while bond investors are more focused on the potential for more disruption coming from the Korean peninsula as well as the current budget impasse in Washington.

Credit Market Insights

Moderation in Auto Lending

Light vehicle sales remained elevated at 17.2 million in Q1, or 15.2 percent higher than the average quarterly pace of 14.9 million since the end of the recession. However, auto loans have decreased the past two quarters, and ended 2017 at 6.7 percent year-over-year growth, down from 8.5 percent growth in Q2-2016. As we examine the current auto lending environment, there are signs pointing to a potential moderation in the run on auto sales that we have seen recently.

In addition to the slowdown of auto lending, the net percent of banks reporting tighter standards for auto loans has grown to 11.7 percent, substantially up from the -6.3 net percent reported in Q1-2016. Of all consumer loan categories surveyed, autos currently have the highest net percentage of banks reporting a tightening of credit standards. Furthermore, Q1-2017 brought a sharp decline in demand for auto loans, with a net percentage of -13.6 percent reporting stronger demand for auto loans, down from 16.7 percent in Q4. Loan rates have been at all-time lows, but have recently started to tick upward, which could explain the tightening standards and dwindling demand for auto loans. Last, auto loan financing has continued rising compared to new car and truck prices, possibly signaling an oversupply of auto financing. Considering the auto lending market's tightening standards, decreasing consumer demand, and heavy supply of financing relative to prices, a slowdown of auto sales could be imminent.

Topic of the Week

Grading the Labor Market Ahead of Graduation

The strongest labor market in a decade bodes well for the Class of 2017, but young workers, including college grads, still face a challenging labor market relative to older workers.

College graduates have typically had more success in the labor market, hence the willingness of many collegegoers to take on debt in order to finance their education. For young college graduates, however, the right job is not always found quickly. Historically, the unemployment rate for college grads under the age of 25 has run closely in line with the headline unemployment rate. Yet over the past year, the unemployment rate for young college grads has been little changed (top chart).

Under-employment also remains more pervasive for young workers. In terms of hours, 20-24 year-olds are most likely to find themselves employed part time despite wanting full-time work (bottom chart). Others find themselves overqualified for the job they hold. According to New York Fed data, 43 percent of college grads ages 22-27 are in jobs that do not typically require a degree compared to 34 percent of all college grads.

At the same time, wage growth among young workers embarking on a career continues to lag, with growth in median weekly earnings for 20-24 year-olds lagging all other age groups since the recession.

The slow rate of earnings growth for young workers stands to exacerbate the student debt challenges faced by college-goers. However, there are indications that borrowers are having a slightly easier time coping. The share of federal loans currently in repayment—both in terms of dollars outstanding and number of recipients— has increased over the past year, while delinquency rates have edged lower. That may have more to do with the growth in income-based repayment plans, however, than the (slowly) improving labor market. Over the past year, the number of federal loan recipients on incomedriven plans has risen by 1.37 million while falling slightly for non-income based plans.




Soft US growth to pressure Fed ahead of Jobs report

The US dollar is mixed against majors with gains against the NZD, JPY, CAD and AUD but weaker against the EUR and GBP. Risk appetite in Europe returned after the restful of the first round of elections in France left Macron and LePen heading into the May 7 deciding second round. The Trump administration presented its tax reform plan and launched a more aggressive trade offensive against NAFTA but anxiety around the dollar surged with the first release of the US GDP in the first quarter coming in below expectations at 0.7 percent.

US employment data will key alongside the May monetary policy meeting of the Fed. The ADP private payroll data will be published on Wednesday, May 3 at 8:15 am EDT. Job creation in the private sector has beat expectations since January, but the market has a conservative estimate of under 200,000. The Federal Open Market Committee (FOMC) will release the statement of the monetary policy meeting at 2:00 pm with no change expected to the rates. The meeting is not scheduled to have a press conference which will put more emphasis on the written statement as analysts and investors look for insights into the Fed's next steps.

The U.S. non farm payrolls (NFP) will be released on Friday, May 5 at 8:30 am EDT. Last month the jobs report was well below expectations with a gain of 98,000 when 170,000 were expected. US employment has been the strongest pillar in the recovery but it has hit some bumps of late. The U.S. Federal Reserve will look at the wage growth component for signs of inflation as they ponder the number of rate hikes this year. The unemployment rate is expected to head higher to 4.6 percent as more people look to rejoin the workforce.

The EUR/USD gained 1.89 in the last five days. The single pair is trading at 1.0902 in a week that started with the results of the French election boosting the EUR and will end with soft economic indicators in the US putting downward pressure on the dollar. The European Central Bank (ECB) kept rates and the stimulus program unchanged, but it managed to make optimistic comments about the economy on Thursday. On Friday that belief was verified with inflation gains of 1.9 percent in the eurozone with the core component rising 1.2 percent and improvements to the Spanish GDP and Italian inflation.

The European commission will publish its Economic Forecast on Monday, May 1 at 5:00 am EDT. Purchasing manager indexes will be published in the Eurozone next week data with Germany and France drawing the most attention on Tuesday, May 2 starting at 3:15 am EDT. German unemployment will be the highlight of Wednesday's economic releases in the EU sharing the spotlight with the flash GDP for the Euro zone at 5:00 am EDT.

The economic calendar is packed in the United States. It starts on Monday, May 1 with US Treasury Secretary Steven Mnuchin giving a speech along with the release of the US purchasing managers index (PMI). Kicking off the jobs data will be the ADP payroll report on Wednesday, May 3. The U.S. non farm payrolls (NFP) will close the week on Friday, May 5. Doubts are growing about the state of the US economy after the weaker GDP number prompting investors to look even more closely at the most important indicator in the market.

The USD/JPY gained 1.998 in the last five days. The pair is trading at 111.39 near weekly highs of 111.78. The Yen started depreciating after the results of the French election reduced the risk aversion that had made the currency a safe haven. The Trump administration in the US also presented the outline of the much-awaited tax reform plan which boosted the dollar. The Bank of Japan (BOJ) was active on Thursday but by keeping rates and the stimulus package unchanged sent a dovish signal to the market.

The economic calendar in Japan will be light as there are three bank holidays next week.

The USD/CAD gained 1.192 percent in the weekly trading session. The pair is trading at 1.3666 after the US dollar resurged after the positive results of the first round the French election. The Canadian dollar touched daily and weekly lows after the Trump administration retracted on comments it was working on an executive order to pull out of NAFTA. Trump said that after talking to the president and prime minister of Mexico and Canada he decided to give the renegotiation route a shot.

US employment data will dominate the economic calendar during the week but there are important Canadian indicators on the agenda. The trade balance will be published on Thursday, May 4 and Canadian employment data will share the day and time of release with the U.S. non farm payrolls (NFP) on Friday, May 5 at 8:30 am. After the impressive 19,400 jobs added last month the forecast calls for a 20,000 gain keeping the unemployment rate unchanged at 6.7 percent. The Canadian purchasing managers index will be released later the same day at 10:00 am with a slight improvement to 62.3 anticipated after a 61.1 figure last month. A reading above 50 in the survey implies expansion of Canadian purchasing orders.

Market events to watch this week:

Monday, May 1

  • 7:45am USD Treasury Sec Mnuchin Speaks
  • 10:00am USD ISM Manufacturing PMI
  • 9:45pm CNY Caixin Manufacturing PMI

Tuesday, May 2

  • 12:30am AUD Cash Rate
  • AUD RBA Rate Statement
  • 4:30am GBP Manufacturing PMI
  • 6:45pm NZD Employment Change q/q

Wednesday, May 3

  • 4:30am GBP Construction PMI
  • 8:15am USD ADP Non-Farm Employment Change
  • 10:00am USD ISM Non-Manufacturing PMI
  • 10:30am USD Crude Oil Inventories
  • 2:00pm USD FOMC Statement
  • USD Federal Funds Rate
  • 9:30pm AUD Trade Balance
  • 11:10pm AUD RBA Gov Lowe Speaks

Thursday, May 4

  • 4:30am GBP Services PMI
  • 8:30am CAD Trade Balance
  • USD Unemployment Claims
  • 4:25pm CAD BOC Gov Poloz Speaks
  • 9:30pm AUD RBA Monetary Policy Statement
  • 11:00pm NZD Inflation Expectations q/q

Friday. May 5

  • 8:30am CAD Employment Change
  • 8:30am USD Average Hourly Earnings m/m
  • 8:30am USD Non-Farm Employment Change




Next week's market movers

  • In the US, the FOMC is forecast to stand pat. We expect policymakers to maintain a balanced tone, with risks skewed towards a more cautious narrative than previously.
  • The RBA is anticipated to remain on hold as well. Considering the improvement in economic data since the last meeting, the accompanying statement could be more upbeat.
  • In Norway, the Norges Bank policy decision will be in focus. We think that this Bank will take no action either, despite slowing inflation.
  • As for the US data, the employment report for April could prove critical to market expectations regarding the timing of the next Fed rate hike.
  • We also get key economic indicators from the US, the UK, New Zealand and Canada.

On Monday, we get loads of US data. Let's kick off with personal income and spending for March. Personal income is expected to have slowed, while personal spending is forecast to have accelerated. The income forecast is supported by a slowdown in average hourly earnings, while we see the risks surrounding the spending forecast as skewed to the downside. We base our view on the fact that retail sales slid during the month.

We also get the core PCE price index for the month, though no forecast is available for the yoy rate yet. However, the mom rate is expected to have turned negative, at -0.1% mom, which based on our calculations, could bring the yearly rate down to +1.6% yoy from +1.8% yoy. Coming on top of the disappointing CPI data for the month, a slowdown in the Fed's favorite inflation measure could amplify the case for a cautious Fed on Wednesday (see below).

Finally, we get the ISM manufacturing PMI for April, and then on Wednesday, the non-manufacturing index for the month. Expectations are mixed, with the manufacturing figure forecast to have declined and the non-manufacturing index to have risen. Despite a potential pullback in the manufacturing index, given that both of these indices are expected to have remained at healthy levels, they could be a first sign that the US economy entered the second quarter on a decent footing, and that the softness in economic growth during the first quarter may have been only transitory.

Elsewhere, markets will remain closed in the UK, Germany, France, Switzerland, Sweden, Norway, and China, in celebration of Labor Day.

On Tuesday, during the Asian morning, the RBA will announce its rate decision. When they last met, policymakers highlighted the softness in labor market indicators, and that the recently announced supervisory measures with regards to lending could ease financial stability risks. Back then, this led us to understand that once these measures take effect, officials would be more flexible to cut rates again if needed. Nevertheless, we don't expect them to take any action at this gathering. The latest jobs report showed a strong recovery in March, while the nation's inflation data for Q1 showed that the headline CPI rate returned back within the RBA's inflation target range of 2-3%. The trimmed mean rate rose notably as well, to just a tick below the lower band of the target range. Having these in mind, we think that the statement accompanying the decision may be relatively more upbeat than previously.

From the UK, we get the manufacturing PMI for April. On Wednesday, we get the construction PMI for the month and then on Thursday, we get the services index. All of these figures are forecast to have declined somewhat. Given that the 1st estimate of Q1 GDP showed a notable slowdown, the market may pay extra attention to these indices to see how the economy entered Q2. Was this weakness temporary or not?

As for the BoE, we don't expect any shift in language anytime soon. The Q1 slowdown is in line with the Bank's current stance to overlook above-target inflation and keep interest rates unchanged in order to support growth. Even if the PMIs foreshadow a rebound in economic activity in the beginning of Q2, we don't expect them to change market perception with regards to BoE policy. We believe that investors want to see much more data supporting an economic recovery, and the election uncertainty to start dissipating, before they start pricing in a decent probability of a rate increase.

On Wednesday, all eyes will be turned to the FOMC rate decision. The forecast is for the Committee to keep borrowing costs unchanged, following a 25bps rate hike at the latest meeting in March. The case for no action this time is also supported by market pricing, which indicates less than 5% probability for a hike. Bearing also in mind that this meeting does not include updated economic forecasts or a press conference by Chair Yellen, market action will most likely come from the phrasing of the statement accompanying the decision.

The latest comments from Chair Yellen and the rest of the officials suggest that they remain on track to raise rates gradually, perhaps even another two times this year in line with the "dot plot". However, these were before the latest slowdown in the nation's headline and core CPIs for March. From a growth perspective, economic activity slowed notably in Q1, but the Committee may look-through some of this softness as being transitory, something already mentioned in the March meeting minutes. On the bright side, the labor market appears quite robust overall, with the unemployment rate currently at 4.5%, in line with the Fed's target of full employment. Bearing these mixed data in mind, we expect the Committee to maintain a more or less balanced tone, with the risks tilted towards a slightly more cautious narrative than previously. Policymakers may prefer to wait for a rebound in the economic data, and even some clarity surrounding the future path of fiscal policy, before clearly communicating that further near-term normalization is on the cards.

As for the US data, we get the ADP employment report for April. The private sector is expected to have added 190k jobs during the month, less than the 263k in March, but still a solid number that could raise speculation for the NFP print to also meet, or even exceed, its forecast of 178k.

We also get the nation's ISM non-manufacturing PMI for April, as we already outlined above.

From New Zealand, we get the employment report for Q1 and the forecast is for the unemployment rate to have remained unchanged. We think that the risks surrounding that forecast may be skewed to the downside, if one looks at the ANZ job ads figure. Already at a high level, job ads rose further throughout the quarter, which suggests that the labor market likely continued to tighten in Q1.

On Thursday, the Norges Bank rate decision will be in the spotlight. In the absence of a forecast, we see the case for the Bank to remain on hold once again. Policymakers shifted to a slightly more dovish tone when they last met in March, indicating that there are prospects that inflation will be lower than previously expected. Since then, data showed that both the headline and the core CPI rates have indeed declined further. Having said that, we do not expect the Bank to ease policy for two key reasons: the unemployment rate is already very low, and any further rate cuts would likely boost house prices in Norway even more, thereby amplifying financial stability risks. The latter factor is something that officials have been paying close attention to for a while now, and we think it is likely to deter them from pulling the easing trigger. We expect the tone of the accompanying statement to remain as is, with the risks being skewed towards a more downbeat assessment.

On Friday, the main event will the US employment report for April. The forecast is for nonfarm payrolls to have risen by 178k, more than the somewhat disappointing 98k in March, and a strong number that is consistent with further tightening in the labor market. The unemployment rate is forecast to have ticked up, while average hourly earnings are expected to have accelerated slightly in monthly terms. Despite a potential uptick in the unemployment rate, this looks like another solid report overall that could bring forth market expectations regarding the timing of the next rate hike. Currently, the next hike is fully priced in for September according to the Fed funds futures. Solid jobs data could bring that forward, perhaps towards the summer meetings. However, as we outlined above, we would first like to see a rebound in critical economic data like the CPIs and GDP, before we assume that the Committee will implement further hikes in the near term.

We also get Canada's employment data for April.





Consumer confidence fell a bit more than expected in April but, at 120.3, remains near a 12-year high. Consumers' views of both present and expected conditions were dialed back, but remain at solid levels.

Paring Back Only Some of Last Month's Surge

Consumer confidence fell 4.6 points in April to 120.3. The pullback was a bit more than expected and followed a downward revision to the March reading. Nevertheless, the index still stands at its second highest reading of the expansion and above the highs of the past expansion.

We expected some giveback in consumer confidence following the trouble late last month surrounding the proposed revision in the Affordable Care Act and the signal it sent that it may be much tougher for Washington to pass new policies than what consumers and the market expected. The stock market slid following the preliminary cut off to the March survey, while yesterday's rally that erased those losses fell outside the April response date.

Assessments of the Labor Market Still Favorable

The pullback in confidence reflected a decline in assessments of both present conditions and expectations. The present situation index fell 3.3 points to a still-solid reading of 140.6. Consumers' views of current employment conditions deteriorated slightly relative to March, but continue to point to a labor market that has improved markedly over the past year. The share of workers reporting jobs are plentiful slipped by one point, while the share reporting that jobs are hard to get was nearly unchanged. The labor differential, the difference between these two series, fell 1.1 point to 11.7 in April, holding most of the leap in March. Compared to a year ago, the labor differential is up more than 10 points and suggests that consumers' view of the labor market has improved more than other measures, such as the unemployment rate.

Looking further out, consumers' expectations for the next six months were somewhat less upbeat. The expectations index fell nearly six points. Following the softer-than-expected March payrolls report, the share of respondents expecting more jobs ahead fell 3.8 points, while the share expecting fewer jobs rose a touch. Income expectations followed suit, with the share of consumers expecting to see their incomes increase falling back near February levels. The share expecting income to decrease, however, remained at a post-recession low.

Confidence Level Still Supportive of Consumer Spending in Q2

Although readings of consumer confidence have been particularly disjointed from households spending in recent months, the index remains at a level supportive of a pickup in spending in the second quarter. Real personal consumption spending in the first quarter looks to have been held down by a number of one-off factors, including depressed utilities spending from relatively warm winter weather, but, with the labor market continuing to improve, we expect a rebound in the second quarter.




National home prices rose 0.4 percent in February and are up 5.8 percent year over year, according to the S&P CoreLogic Case-Shiller Index. Prices continue to be fueled by a steady uptrend in sales and low inventory.

National Home Prices Edge Up

Supported by tight supply and steady gains in home sales, U.S. home prices continue to edge higher. The S&P CoreLogic Case- Shiller National Home Price Index is up 5.8 percent over the past 12 months and the 20-City and 10-City indices are up 5.9 percent and 5.2 percent, respectively.

Among the 20 cities, Seattle continues to lead price gains, reporting a 12.2 percent increase over the year.

Solid Seller's Market

Sentiment reports indicate that consumers feel increasingly confident that it is a "good time to sell." Survey measures have been corroborated by recent hard data as the NAR reports properties are selling at a faster rate. Existing homes were on the market for an average of just 34 days in March, down from 45 days in February and 50 days in January. Low inventories and rising demand are likely to continue to fuel price pressures.



The euro vaulted to five-month peaks in choppy Asian trading on Monday after the market's favored candidate won through the first round of the French election, sparking a mass unwinding of safe-haven trades.

E-mini futures for the S&P 500 (ESc1) climbed 0.9 percent in early trade, while futures for the 10-year U.S. Treasury note sank 25 ticks <0#TY:>.

Centrist Emmanuel Macron took a big step toward the French presidency on Sunday by winning the first round of voting and qualifying for the May 7 runoff alongside far-right leader Marine Le Pen.

The outcome lessens the risk of an anti-establishment shock on the scale of Britain's vote to quit the European Union with Macron widely tipped to win the final vote and keep France in the union.

Investors had feared for the single currency's future if one of the far-left candidates had gotten through to fight Le Pen, and the euro jumped in relief. It was last up 1.5 percent at $1.0880 (EUR=), having been as far as $1.0940, the highest since early November.

The safe-haven yen was dumped across the board with the euro surging 2.6 percent to 120.03 yen (EURJPY=) while the U.S. dollar gained 1.2 percent to 110.34 yen (JPY=).

"We expect Macron to win the second round and to become the next French president, on the basis that the candidate closest to the center of the political spectrum has the best chance to win," said analysts at Citi in a note. "Given Macron's pro-EU platform, the outlook for Europe ought to be strengthened."

Indeed, opinion polls were putting Macron ahead by over 20 points, a lead so large that a repeat of the Brexit surprise seemed highly unlikely.

Citi cautioned against chasing the euro much above $1.0900.

"The results are EUR positive, but with the ECB on Thursday, as well as still uncertainty into Round Two, we would emphasize these results are in-line with expectations, not exceeding them," they wrote.

Dealers assumed equities globally would get a relief bounce from the French result, while sovereign bonds could run into profit taking. Likewise, gold fell 1 percent to $1,270.83 an ounce (XAU=).

Wall Street on Friday had only a modest lift from news President Donald Trump would announce the broad outline of his proposed tax package on Wednesday.

"Markets are skeptical that the real details will be forthcoming," said analysts at ANZ in a note. "There is also plenty of conjecture about whether any tax cuts will be able to be revenue neutral, and that could affect their ease of passage through Congress."

The Dow (.DJI) ended Friday down a minor 0.15 percent, while the S&P 500 (.SPX) lost 0.30 percent and the Nasdaq (.IXIC) fell 0.11 percent.

Investors were also keeping a wary eye on tensions in the Korean peninsular.

North Korea said on Sunday it was ready to sink a U.S. aircraft carrier to demonstrate its military might, in the latest sign of rising tension as Trump prepared to call the leaders of China and Japan.

Oil prices recouped just a little of last week's hefty losses, still weighed by signs U.S. production and inventory growth were offsetting OPEC's attempts to reduce the global crude glut.

Brent futures (LCOc1) were up 21 cents at $52.17 a barrel, while U.S. crude futures (CLc1) added 18 cents to $49.80.




Headlines

European equities trade little changed and mixed after a better opening. US equities open with small losses of about 0.15%.

The UK unemployment rate stabilised in the 3 months to February at 4.7%, the lowest level since 2005. Average weekly earnings rose by 2.3% Y/Y (vs 2.2% Y/Y expected). Employment growth was less than forecast though (+39k vs +70k) while jobless claims rose by 25.5k. Sterling hardly reacted to the mixed report.

Opec's oil output fell in March to sit below the level where the cartel estimates demand for its crude this year, as attempts to tighten the market were bolstered by supply disruptions in member countries. Brent crude rose further today, north of $56.5/barrel.

Christine Lagarde, the IMF's managing director, said that eurozone creditors must provide considerably more detail on debt relief for Greece before the fund will take a decision to join the country's bailout programme.

US Secretary of State Tillerson and Russian Foreign Minister Lavrov met in Moscow, amid a confrontation between the Trump administration and Russia over recent US strikes on Syria and the fate of Syrian President al-Assad. In remarks before a closed-door session, Mr. Lavrov appeared to warn Washington not to strike Syria again.

Chinese President Xi Jinping called for a peaceful resolution of rising tension on the Korean peninsula in a telephone conversation with US President Trump, as a US aircraft carrier strike group steamed towards the region.

Rates

Geopolitical tensions ease

Global core bonds traded in a narrow sideways range today amid an empty eco calendar. The geopolitical storm following hostile US comments against Syria and North Korea eased. Equity markets (lower) and oil prices sent a diffuse picture for core bonds. Markets seem to be gearing up for US retail sales and inflation data on Friday. In yield terms, both the German (0.2%) and US 10-yr yield (2.3%) hover close to/slightly below key support levels. At the time of writing, the changes on both the US and German yield curve range between -1 bp and +1 bp. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 4 bps with Greece outperforming (-7 bps).

The German Finanzagentur held a €3B 10-yr Bund auction (0.25% Feb2027). Total bids amounted to €3.45B, below the €4.89B average at the previous 4 Bund auctions. The Bundesbank retained €0.57B of the amount on offer for secondary market operations, resulting in an official bid cover of 1.4 (real bid cover 1.2). The auction had no tail and the yield nearly halved (0.21%) compared to last month's auction. The Italian Treasury launched a new 3-yr BTP (€4.5B 0.35% Jun2020) and tapped two on the run BTP's (€2.5B 1.85% May2024 & €2B 2.25% Sep2036) and one off the run BTP (€1B 3.5% Mar2030). The total amount sold was the maximum of the high €8-10B target with an auction bid cover (1.32)-in line with Italian average. The Irish debt agency sold the on the run 10-yr IGB (€0.7B 1% May2026) and off the run IGB (€0.55B 3.9% Mar2023) for a combined €1.25B, the higher end of the €1-1.25B target. With the completion of today's auction, the NTMA has issued €7.75B from its stated target range of €9-13B in the bond markets this year. The US Treasury concludes its refinancing tonight with a $12B 30-yr Bond auction. Currently, the WI trades around 2.93%..

Currencies

Dollar stabilizes after disappointing session yesterday

The dollar steadied today as geopolitical tensions moved to the background. There was no economic nor other key headline news that could give the main currency crosses firm direction. So EUR/USD and USD/JPY are currently very close to yesterday's closing levels.

After an uneventful Asian session, EUR/USD tried again to move higher from 1.0610, but the sluggish move ran already into resistance around 1.0625, after which euro selling occurred, pushing the pair to the 1.0605 opening level. It stayed around this level going into the close of our report. Both US and German yields are nearly flat on the day, implying that rate differentials barely changed. European equities eked out small gains, while US equity futures show marginal losses. We think that the upcoming Easter holiday keep investors side-lined. Combined with no strong movers, it leaves EUR/USD paralyzed close to 1.06. Investors are unwilling to reverse last week's dollar gains, but have no appetite either to test the key 1.05 level.

The yen gained substantial ground yesterday on a rise of geopolitical tensions. It pushed USD/JPY through the key 110 level. Risk sentiment turned neutral in the European session. USD/JPY set a new ST low at 1.0935 in Asian trading, but the yen returned its gains. However, also USD/JPY had no appetite to test the broken 110 level. USD/JPY set an intraday high at 1.0976, barely above the 109.62 close yesterday. In the US session, there is a slight negative trading bias, but the pair changes hands at 109.55 at the time of writing, virtually unchanged on the day.

Sterling holds on to yesterday's gains

Similar to our two main crosses, sterling trading was absolutely boring. Traders awaited the labour report, but it was mixed and thus neutral for sterling. As EUR/USD hovered lackluster throughout the session, sterling couldn't get direction from it. The market reacted for a second to the labour market report. Earnings were a tad higher than expected, but it were offset by weaker employment and higher than expected jobless claims. So the initial dip lower in EUR/GBP and the spike higher in cable were immediately undone. Cable traded between 1.2480 and 1.2510 and changes currently hands at 1.2493, virtually unchanged on the day. EUR/GBP trades currently at 0.8490, exactly yesterday's close.






Headlines

European equities trade little changed and mixed after a better opening. US equities open with small losses of about 0.15%.

The UK unemployment rate stabilised in the 3 months to February at 4.7%, the lowest level since 2005. Average weekly earnings rose by 2.3% Y/Y (vs 2.2% Y/Y expected). Employment growth was less than forecast though (+39k vs +70k) while jobless claims rose by 25.5k. Sterling hardly reacted to the mixed report.

Opec's oil output fell in March to sit below the level where the cartel estimates demand for its crude this year, as attempts to tighten the market were bolstered by supply disruptions in member countries. Brent crude rose further today, north of $56.5/barrel.

Christine Lagarde, the IMF's managing director, said that eurozone creditors must provide considerably more detail on debt relief for Greece before the fund will take a decision to join the country's bailout programme.

US Secretary of State Tillerson and Russian Foreign Minister Lavrov met in Moscow, amid a confrontation between the Trump administration and Russia over recent US strikes on Syria and the fate of Syrian President al-Assad. In remarks before a closed-door session, Mr. Lavrov appeared to warn Washington not to strike Syria again.

Chinese President Xi Jinping called for a peaceful resolution of rising tension on the Korean peninsula in a telephone conversation with US President Trump, as a US aircraft carrier strike group steamed towards the region.

Rates

Geopolitical tensions ease

Global core bonds traded in a narrow sideways range today amid an empty eco calendar. The geopolitical storm following hostile US comments against Syria and North Korea eased. Equity markets (lower) and oil prices sent a diffuse picture for core bonds. Markets seem to be gearing up for US retail sales and inflation data on Friday. In yield terms, both the German (0.2%) and US 10-yr yield (2.3%) hover close to/slightly below key support levels. At the time of writing, the changes on both the US and German yield curve range between -1 bp and +1 bp. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 4 bps with Greece outperforming (-7 bps).

The German Finanzagentur held a €3B 10-yr Bund auction (0.25% Feb2027). Total bids amounted to €3.45B, below the €4.89B average at the previous 4 Bund auctions. The Bundesbank retained €0.57B of the amount on offer for secondary market operations, resulting in an official bid cover of 1.4 (real bid cover 1.2). The auction had no tail and the yield nearly halved (0.21%) compared to last month's auction. The Italian Treasury launched a new 3-yr BTP (€4.5B 0.35% Jun2020) and tapped two on the run BTP's (€2.5B 1.85% May2024 & €2B 2.25% Sep2036) and one off the run BTP (€1B 3.5% Mar2030). The total amount sold was the maximum of the high €8-10B target with an auction bid cover (1.32)-in line with Italian average. The Irish debt agency sold the on the run 10-yr IGB (€0.7B 1% May2026) and off the run IGB (€0.55B 3.9% Mar2023) for a combined €1.25B, the higher end of the €1-1.25B target. With the completion of today's auction, the NTMA has issued €7.75B from its stated target range of €9-13B in the bond markets this year. The US Treasury concludes its refinancing tonight with a $12B 30-yr Bond auction. Currently, the WI trades around 2.93%..

Currencies

Dollar stabilizes after disappointing session yesterday

The dollar steadied today as geopolitical tensions moved to the background. There was no economic nor other key headline news that could give the main currency crosses firm direction. So EUR/USD and USD/JPY are currently very close to yesterday's closing levels.

After an uneventful Asian session, EUR/USD tried again to move higher from 1.0610, but the sluggish move ran already into resistance around 1.0625, after which euro selling occurred, pushing the pair to the 1.0605 opening level. It stayed around this level going into the close of our report. Both US and German yields are nearly flat on the day, implying that rate differentials barely changed. European equities eked out small gains, while US equity futures show marginal losses. We think that the upcoming Easter holiday keep investors side-lined. Combined with no strong movers, it leaves EUR/USD paralyzed close to 1.06. Investors are unwilling to reverse last week's dollar gains, but have no appetite either to test the key 1.05 level.

The yen gained substantial ground yesterday on a rise of geopolitical tensions. It pushed USD/JPY through the key 110 level. Risk sentiment turned neutral in the European session. USD/JPY set a new ST low at 1.0935 in Asian trading, but the yen returned its gains. However, also USD/JPY had no appetite to test the broken 110 level. USD/JPY set an intraday high at 1.0976, barely above the 109.62 close yesterday. In the US session, there is a slight negative trading bias, but the pair changes hands at 109.55 at the time of writing, virtually unchanged on the day.

Sterling holds on to yesterday's gains

Similar to our two main crosses, sterling trading was absolutely boring. Traders awaited the labour report, but it was mixed and thus neutral for sterling. As EUR/USD hovered lackluster throughout the session, sterling couldn't get direction from it. The market reacted for a second to the labour market report. Earnings were a tad higher than expected, but it were offset by weaker employment and higher than expected jobless claims. So the initial dip lower in EUR/GBP and the spike higher in cable were immediately undone. Cable traded between 1.2480 and 1.2510 and changes currently hands at 1.2493, virtually unchanged on the day. EUR/GBP trades currently at 0.8490, exactly yesterday's close.






Import prices declined 0.2 percent in March on lower prices for imported energy goods. Ex-fuel, however, prices are rising amid strengthening in the industrial sector and an improved capital spending environment.

Petroleum a Drag, but Core Import Prices Rise

Import prices slipped in March for the first time in four months as the recovery in oil prices took a step back. Prices for goods from overseas fell 0.2 percent.

Ex-petroleum prices rose 0.2 percent and are up 1.2 percent year over year. The recovery in nonfuel prices has been in large part driven by strengthening in the business sector as nonfuel industrial supplies and capital goods prices are rebounding.

Consumer Good Price Pressures Still Soft

Prices for imported consumer goods fell last month but, after upward revisions to January and February, suggest some modest easing in the rate of goods deflation in the core CPI.

Exporters have benefited from the improved global backdrop and more stable dollar, allowing further price increases. Export prices ex-food and fuel items rose 0.3 percent in March and, on a 12-month basis, are rising at the strongest pace since 2012.




What we can see here is a potential three drives pattern forming on EURUSD -0.01% . What tipped me off about this particular pair is the fact that the second drive featured a bullish move that hit the 1.272 retracement of the first drive almost perfectly (indicated by the orange arrow). So what we can expect to see is the third drive to hit the 1.272 retracement of the second drive - as per the definition of the 3 drives pattern. I've been expecting this pattern ever since the price hit the 1.09071 mark, and the drop in price from the 27th of March onward has given me more confidence to pursue this potential idea. 

You can try and catch the third drive up with a very aggressive entry but the structure always has a chance to change on a dime - especially given the dollar's recent unpredictability. The more conservative play would be to wait until the price hits 1.09791 and then signs of a retracement. Another reason to stick to the conservative play would be the fact that the price might even hit the 1. 618 retracement (unlikely but not unheard of) and then come down to about the 1.06342 level. 

Conservative Setup: 
Entry: 1.09585 
TP: 1.05874 
SL: 1.09796 

Aggressive Setup: 
Entry: 1.06844 
TP: 1.09763 
SL: 1.06369 

Always take the necessary precautions when trading! 




After the prior week’s relative “fireworks”, last week returned to the action we’ve seen much of 2017 – relative calm with an upward skew.  Very minor losses Monday and Friday book-ended 3 days of gains, with Tuesday being the one day where indexes moved significantly in any direction.  The S&P 500 gained 0.80% for the week and 5.5% for quarter 1.  Tuesday’s gains were buoyed by news consumer confidence in March soared to the highest level in more than 16 years, and U.S. house prices jumped to their highest in nearly three years.

We’ve been noting the lack of volatility in many of our weekly posts; to that end:

Stocks are coming off their least volatile quarter in decades with the Dow industrials averaging a 0.3% change per day, the most steady quarter since the fourth quarter of 1965, according to Dow Jones data. The S&P 500 also averaged a daily change of 0.3% during the quarter, its least volatile since the third quarter of 1967.

Apple had a good week as it jumped 2.1% Tuesday to close at a record $143.80 after a UBS analyst said he could see the stock rise another 22% in his “most likely scenario.”  It is worth noting as this stock is so influential on the NASDAQ which is currently outperforming the S&P 500.

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You can see similar great action in NASDAQ heavyweights such as Facebook (FB) and Amazon (AMZN).

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Here is the weekly “intraday” chart of the S&P 500 via Jill Mislinksi.

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April is a great month for stocks; maybe it is all that last minute IRA money trying to get in before the annual deadline!

Over the past six decades, the Dow Jones Industrial Average has produced an average gain of 1.2% in the first half of April. The comparable average for the other 11 months is 0.2%.

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China may have uncovered the largest gold mine in the country.

What is the Baltic Dry Index and should you care?

The week ahead…

A lot of interesting economic reports with both the manufacturing and non manufacturing ISM set to report.  Friday brings the monthly employment data.

  • Monday – ISM Manufacturing
  • Wednesday – ISM Non Manufacturing
  • Wednesday: FOMC Minutes
  • Friday – Employment Data: ~180,000 jobs expected to be created

Presidents Trump and Xi Jinping are set to meet.  Looks like China is greasing the skids nicely…

China has also looked favorably on Mr Trump’s business. Since his inauguration it has approved dozens of pending trademark applications by The Trump Organization. The volume of applications to market Ivanka Trump’s brand in China has also soared. This week, Kushner Companies — the family property group from which Jared has stepped back — ended talks to sell a prime piece of Manhattan real estate on very favorable terms to Anbang, a Chinese company, after members of Congress alleged a conflict of interest.

And we are soon to embark on earnings season!

First-quarter earnings are expected to grow by 9.1%, in what would be the largest year-over-year quarterly gain since the fourth quarter of 2011, according to John Butters, senior earnings analyst at FactSet.

Index charts:

Short term: A bit of bifurcation here as the S&P 500 is in a bit of a short term downtrend here while the NASDAQ is approaching highs set a month earlier.

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https://www.stocktrader.com/wp-content/uploads/2017/04/nasdaq-300x245.png 300w, https://www.stocktrader.com/wp-content/uploads/2017/04/nasdaq-600x491.png 600w, https://www.stocktrader.com/wp-content/uploads/2017/04/nasdaq-522x426.png 522w" sizes="(max-width: 620px) 100vw, 620px">

The Russell 2000 has been stuck in this same range for all of 2017!

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An interesting turn of events here on the NYSE McClellan Oscillator which had been negative most of March; it turned positive this week.  So this is a feather in bull’s cap.  We have to respect that if we are being consistent and say the outlook is now better for the bulls than it has been the past month.

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Long term: Here are 5 year charts on the major indexes; if your trading timeline is measured in years rather than days or weeks, you are just in “sit and smile” mode.

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Charts of interest:

Darden (DRI) rallied 9.3% Tuesday after the Olive Garden parent reported earnings that topped expectations.

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This week in the biotech lottery: Vertex Pharma (VRTX) surged Thursday after the company’s drug for cystic fibrosis met endpoints in two late-stage clinical studies.

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Part 2 of the biotech lottery happened Friday when Akari Therapeutics (AKTX) soared 59% to $11.07 after the U.S. Food and Drug Administration granted one of its treatments a “fast-track” designation.

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Restoration Hardware parent RH (RH) jumped 15% Thursday a day after the home furnishings retailer posted better-than-expected earnings.

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It really wouldn’t be a proper week without a disaster in the retail space, now would it?  So this week’s presentation:  Lululemon (LULU) tumbled more than 23% Thursday as several analysts cut price targets on the retailer, which forecast lower profit and sales in the first quarter and missed fourth-quarter earnings expectations.

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Again, I am not sure who owns a Blackberry (BBRY) who is not in government but apparently they are still around… and the stock jumped 12% Friday after trimming losses and stating that it expects to be profitable on an adjusted earnings-per-share basis in fiscal 2018.

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Have a great week and we’ll see you back here Sunday!




We will be looking forward to the upcoming key economic events on the economic calendar. Make sure to catch up with our weekly lookback overview every Friday.

Event : FOMC Member Kaplan Speech

Affected market: USD

Usual Effect: More hawkish than expected = Good for currency

Date: Monday 27 March at 22:30GMT

Federal Reserve FOMC members vote on where to set the nation's key interest rates and their public engagements are often used to drop subtle clues regarding future monetary polic.

Robert Steven Kaplan has served as the thirteenth president and CEO of the Federal Reserve Bank of Dallas since September 8, 2015. He represents the Eleventh Federal Reserve District on the Federal Open Market Committee in the formulation of U.S. monetary policy and oversees the 1,200 employees of the Dallas Fed.

 

Event: Goods Trade Balance 

Affected market: USD

Usual Effect: Actual > Forecast = Good for currency;

Date: Tuesday 28 March at 12:30GMT

Trade in goods makes up about 75% of total trade, and therefore provides early insight into the Trade Balance data reported about 5 days later. A positive number indicates that more goods were exported than imported. Source first released in Jul 2015;

Why Traders care? Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers;

 

Event: Consumer Confidence 

Affected market: USD

Usual Effect: Actual > Forecast = Good for currency;

Date: Tuesday 28 March at 14:00GMT

Financial confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity and is released monthly, on the last Tuesday of the current month;

 

Event: BOC Governor Poloz Speech 

Affected market: CAD

Usual Effect: More hawkish than expected = Good for currency;

Date: Tuesday 28 March at 14:10GMT

BOC Governor Jun 2013 - May 2020. Volatility is sometimes experienced during his speeches as traders attempt to decipher interest rate clues;

Why Traders Care? As head of the central bank, which controls short term interest rates, he has more influence over the nation's currency value than any other person. Traders scrutinize his public engagements as they are often used to drop subtle clues regarding future monetary policy;

 

Event:  UK government triggers Article 50 for Brexit

Affected market:GBP

Date: Wednesday 29 March at 00:00GMT

British Prime Minister Theresa May is set to trigger Article 50 of the Lisbon Treaty, which officially kicks off the process of exiting the European Union.

May will send a letter to European Council President Donald Tusk formally announcing Britain's withdrawal from the bloc on Wednesday. Tusk will then send draft negotiating guidelines to the 27 other member states within 48 hours.

Besides Brexit-related developments, traders will be looking ahead to a final reading on UK Q4 economic growth on Friday for further indications on the continued effect that the Brexit decision is having on the economy.

The report is forecast to confirm the economy grew 0.7% in the final three months of last year. On a year-over-year basis, the economy is expected to grow by 2.2%, underlining the view that the British economy remains on a solid footing.

The Bank of England voted to keep interest rates unchanged earlier this month, but the decision was split with one of the nine members voting to raise rates for the first time since July given the recent spike in inflation.

 

Event:  Initial Jobless Claims

Affected market: USD

Date: Wednesday 30 March at 12:30 GMT

Unusual Effect: Actual < Forecast = Good for currency

This is the nation's earliest economic data. The market impact fluctuates from week to week - there tends to be more focus on the release when traders need to diagnose recent developments, or when the reading is at extremes.

Unemployment is a major consideration for those steering the country's monetary policy;

Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions.

 

Event:   Non-manufacturing PMI

Affected market: CNY

Date: Wednesday 31 March at 01:00 GMT

Unusual Effect: Actual > Forecast = Good for currency;

Above 50.0 indicates industry expansion, below indicates contraction. Tends to have more impact when it's released ahead of the HSBC Manufacturing PMI because the reports are tightly correlated. Chinese data can have a broad impact on the currency markets due to China's influence on the global economy and investor sentiment;

It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy.





Wall St closed higher on Tuesday, as investors piled into U.S. equities, after consumer confidence surged to its highest level since 2000, which overshadowed concerns about President Trump’s ability to push a tax reform package through congress.

The Dow snapped an eight-day losing streak, buoyed by better than expected consumer confidence data, which lifted sentiment amid worries that the healthcare bill setback could weigh on the success of Trump’s pro-growth policies being passed.

The Consumer Board Consumer Confidence Index, hit 125.6, far above expectations of a 114 print. Consumer confidence rose to its highest level in nearly 17 years.

Finanicals and energy led the rally, as the latter benefited from a recovery in oil prices, after a severe disruption to Libyan oil supplies while bullish comments from OPEC officials lifted sentiment.

On the New York Mercantile Exchange crude futures for May delivery gained 64 cents to settle at $48.37 a barrel, while on London's Intercontinental Exchange, Brent added 55 cents to trade at $51.44 a barrel.

Meanwhile, investors digested a slew of comments from Federal Reserve officials on Tuesday, as Kansas City Federal Reserve President Esther George said she needs more details on the Trump administration's fiscal proposals while Fed Chair Yellen did not address monetary policy.

In corporate news, shares of Tesla (NASDAQ:TSLA) closed nearly 3% higher, after the California-based electric carmaker said Chinese giant Tencent acquired a 5% stake for $1.78 billion.

The Dow Jones Industrial Average closed 0.73% higher at 20,701. The S&P 500 gained 0.73% and the Nasdaq Composite closed 0.6% higher at 5875.14.

The top S&P 500 gainers included Darden Restaurants Inc (NYSE:DRI) up 9.3%, and Red Hat Inc (NYSE:RHT) up 5.2%, while Chesapeake Energy Corporation (NYSE:CHK) added 4.5%.

McCormick & Company Incorporated (NYSE:MKC) down 2.9%, Newmont Mining Corporation (NYSE:NEM) down 2.7% and Edwards Lifesciences Corporation (NYSE:EW) slumped 1.5%, were among the worst S&P 500 performers of the session.




China's Tencent Holdings Ltd (HK:0700) has bought a 5 percent stake in U.S. electric car maker Tesla Inc (O:TSLA) for $1.78 billion, the latest investment by a Chinese internet company in the potentially lucrative market for self-driving vehicles and related services.

Tencent's investment, revealed in a U.S. regulatory filing, provides Tesla with an additional cash cushion as it prepares to launch its mass-market Model 3. Tesla's shares were up 2.9 percent at $277.03 in midday trading on Tuesday, making it rival Ford Motor Co (N:F) as the second-most-valuable U.S. auto company behind General Motors Co (N:GM).

The deal expands Tencent's presence in an emerging investment sector that includes self-driving electric cars, which could enable such new modes of transportation as automated ride-sharing and delivery services, as well as ancillary services ranging from infotainment to e-commerce.

Those new technologies, and their potential to create new business models and revenue streams in the global transportation sector, have attracted billions in investment from China's three tech giants - Tencent, Alibaba Group Holding Ltd (N:BABA) and Baidu Inc (O:BIDU).

Tesla Chief Executive Officer Elon Musk on Tuesday tweeted: "Glad to have Tencent as an investor and adviser to Tesla." Musk did not say what he meant by "adviser."

In an investor note, Morgan Stanley (NYSE:MS) auto analyst Adam Jonas said on Tuesday that he "would not be surprised" to see Tencent and Tesla collaborate in the development and deployment of some of those technologies.

The White House did not immediately respond to a request for comment on the Chinese investment in Tesla, but President Donald Trump has been critical of U.S. automakers and of China trade policies.

Musk, in a separate tweet, said Tesla had "very few" Model 3 orders from China, where the car has not been formally introduced. The midsize Model 3 is due to go on sale later this year in the United States.

China is the world's largest auto market.

Founded in 1998 by entrepreneur Ma Huateng, Tencent is one of Asia's largest tech companies, best known for its WeChat mobile messaging app. With a market capitalization of about $275 billion, it is roughly six times the size of 14-year-old Tesla, whose $46 billion market cap on Tuesday matched that of 114-year-old Ford.

Tencent was an early investor in NextEV, a Shanghai-based electric vehicle startup that since has rebranded itself as Nio, with U.S. headquarters in San Jose, not far from Tesla's Palo Alto base. Tencent also has funded at least two other Chinese EV startups, including Future Mobility in Shenzhen.

In addition, Tencent has invested in Didi Chuxing, the world's second-largest ride services company behind Uber, and in Lyft, Uber's chief U.S. rival.

Baidu has invested in Nio, as well as in Uber and Velodyne, a California maker of laser-based lidar sensors for self-driving cars. Alibaba's mobility investments include Didi and Lyft.

As Tesla is doing, many of the start-up companies backed by Tencent, Baidu and Alibaba are developing self-driving systems that eventually could be introduced in commercial ride-sharing fleets in the United States and China after 2020.

Tencent maintains a U.S. office in Palo Alto, in the heart of California's Silicon Valley. Beijing-based Baidu and Hangzhou-based Alibaba also maintain offices in Silicon Valley.

Tencent owns about 8.2 million shares in Tesla, the carmaker said. It is the fifth-largest shareholder, behind Musk and investment companies Fidelity, Baillie Gifford and T. Rowe Price.

To help fund Model 3 production, Tesla raised about $1.2 billion by selling common shares and convertible debt earlier this month. Tencent said its shares were acquired as part of the early March equity sale and on the open market.

Musk had a stake of about 21 percent as of Dec. 31.




Indicators on larger (weekly, monthly) timeframes are very much elevated and overbought. 

CoT levels continue to be extreme with Commercials record short and Large Specs record long. 
An accident waiting to happen imo. 

I`m looking to enter short in the next couple of days. 
Watch out for the prospective plantings report on March 31, this may be the trigger. 

Keep in mind that even tho world stocks are expected to decline next crop year, overall world stocks are still very high. ~50% higher then in 2000 

The  target area is around 70.



GBP / USD



Following a busy week packed with central bank meetings and European elections, market players will focus on a handful of Federal Reserve speakers in the week ahead, including Chair Janet Yellen, as they look for more clues on the timing of the next U.S. rate hike.

Traders will also keep an eye out on U.S. housing data to gauge if a recent increase in consumer spending and inflation is translating into higher home prices and a pick-up in home sales.

Meanwhile, in the U.K., market participants will be looking ahead to reports on consumer prices and retail sales for further indications on the continued effect that the Brexit decision is having on the economy.

In the euro zone, investors will await flash survey data on euro zone business activity for fresh clues on the health of the region’s manufacturing and services sector.

Elsewhere, traders will be looking to retail sales and inflation data from Canada to gauge the health of the economy.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. Fed Chair Janet Yellen Speaks

A handful of Fed policymakers are due to make public appearances this week that may offer insight into the likelihood of higher interest rates in the months ahead.

Monday sees Chicago Fed President Charles Evans speak about current economic conditions and monetary policy at the National Association for Business Economics luncheon in New York.

On Tuesday, New York Fed President William Dudley, Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester make public appearances.

Thursday sees Fed Chair Janet Yellen deliver opening remarks at the Federal Reserve System Community Development Research Conference, in Washington DC at 8:45AM ET (12:45GMT).

Minnepolis Fed President Neel Kashkari at Strong Foundations Conference and Dallas Fed President Rob Kaplan are also on tap Thursday.

Finally, on Friday, Chicago Fed's Evans, New York Fed chief Dudley and St. Louis Fed President James Bullard are scheduled to deliver comments.

The Fed raised its benchmark interest rate last week in a widely-expected move, but stuck to its projection for two more hikes this year. Heading into the meeting, markets had braced for a potentially more hawkish tone from the Fed.

2. U.S. Housing Data for February

The National Association of Realtors is to release data on existing home sales for February at 10:00AM ET (14:00GMT) on Wednesday, amid forecasts for a decline of 1.8% to 5.57 million, following a gain of 3.3% a month earlier.

On Thursday, the Commerce Department is to publish a report on new home sales for February at 10AM ET. The data is expected to show an increase of 0.6% to 568,000, following a jump of 3.7% in January.

Besides the housing-related data, this week's rather light calendar also features reports on initial jobless claims and durable goods orders.

Headlines from Washington will also be in focus, as traders await further details on President Donald Trump's promises of tax reform and infrastructure spending.

The House is expected to vote on a heath care bill Thursday, and if it passes that would be seen as a small step moving Congress closer to considering tax reform, though any legislation must also battle its way through the Senate.

3. U.K. CPI & Retail Sales for February

The U.K. Office for National Statistics will release data on consumer price inflation for February at 09:30GMT (5:30AM ET) on Tuesday. Analysts expect consumer prices to rise 2.1%, after increasing 1.8% a month earlier.

On Thursday, the ONS will produce a report on February retail sales at 09:30GMT (5:30AM ET), with analysts expecting an increase of 0.4%, following a drop of 0.3% in the preceding month.

The Bank of England voted to keep interest rates unchanged last week, but the decision was split with one of the nine members voting to raise rates for the first time since July given the recent spike in inflation.

4. March Flash Euro Zone PMIs

The euro zone is to publish preliminary data on manufacturing and service sector activity for March at 09:00GMT (5:00AM ET) on Friday, amid expectations for a modest decline.

Ahead of the euro zone PMI's, France and Germany will release their own PMI reports at 08:00GMT and 08:30GMT respectively.

An upbeat reading would likely add to growing speculation that the European Central Bank could start raising interest rates before its asset purchase program has come to an end.

Ongoing signals of robust growth and surging inflation combined with hawkish comments from a number of ECB policymakers in the past week prompted market players to bring forward their expectations for a rate hike to as early as December.

5. Canadian Retail Sales & Inflation Figures

Canada is to release January retail sales figures at 8:30AM ET (12:30GMT) Tuesday, amid expectations for a gain of 1%, following a 0.5% decline in December. Core sales are forecast to climb 1.2%, after falling 0.3% a month earlier.

On Friday, Canada is to publish data on February consumer price inflation at 8:30AM ET (12:30GMT). The data is expected to show that inflation increased 0.2% last month, after rising 0.9% a month earlier. On a yearly base, CPI is projected to climb 2.1%.

The Bank of Canada kept interest rates on hold earlier this month and said that the current monetary policy stance remains appropriate.




"Not much in the way of changes in our COT readings with the exception of the large increase in the net short for gold. However as long as large commercials remain below -200,000 net short we feel justified in remaining slightly bullish. However this reading does perhaps bode well for risk at least in the short term.

This week hinges on Friday's employment data and the usual Trump soundbites.

Therefore our recommendations for next week are:

Continue accumulating gold slowly on weakness

Continue selling risk especially if YEN shows accelerated signs of strength

Only continue buying the 30 year bond is risk falls

Sell crude."

Now let's see how we fared on our recommendations:

We were granted a great opportunity to buy gold on weakness

Selling risk as measured by the S&P500 was marginally correct as it fell very slightly even though the YEN also fell

As risk only fell very marginally we did not buy the 30 year bond as it fell strongly

Selling crude was a great trade.

A good week.

A busy week with central bank activity especially on Wednesday when the FED is expected to hike rates.

USD: The US$ Index closed slightly higher last week.

We start on Tuesday with PPI expected to fall markedly from 0.6% to 0.1%.

Wednesday is a busy day.

We have both CPI and Core CPI. The former is anticipated at 0.0% from the previous 0.6% whilst the latter is thought to be 0.2% from 0.3%.

This is followed by both Core Retail sales and Retail sales. The former is also expected to fall dramatically from 0.8% to 0.1% whilst the latter is expected to halve from 0.4% to 0.2%.

We then have a great deal of FED activity. We start with the FOMC Economic Projections. Then the FOMC Statement closely followed by the FED Funds rate expected to be increased from 0.75% to 1.00%. Finally we have the FOMC Press Conference.

Thursday starts with Building Permits thought to fall slightly from 1.29M to 1.26M. This is followed by the FED Manufacturing Index estimated to be 30.2 from 43.3 and finally the usual Unemployment Claims figure guesstimated to be 245,000 from the previous 243,000.

To end the week we have Consumer Sentiment thought to rise from 96.3 to 97.1

COT data shows that large commercials increased their net short position in the US$ Index from -51,199 to -58,486 last week. We therefore remain SLIGHTLY BEARISH.

EURO: The EURO rose strongly against the USD last week.

Only one item for the EURO this week which takes place on Monday when the ECB President speaks.

COT data for the Euro shows that large commercials increased their net long position from +58,524 to +66,771 last week. We therefore remain NEUTRAL.

GBP: The GBP closed slightly lower against the USD last week.

A busy week for the GBP.

On Wednesday we have the Average Earnings Index expected to decline slightly from 2.6% to 2.4%.

This is followed by the Claimant Count Change which is estimated to rise from -42,400 to +3,200.

Thursday is the big day.

The MPC Official Bank rate Votes is anticipated to remain at 0-0-9 meaning all members vote for rates to remain the same.

next we have the Monetary Policy Summary and finally the Official bank Rate expected to remain at 0.25%.

COT data shows that large commercials substantially increased their net long position from +79,822 to +92,337 last week. This is once again approaching a 52 week high and we therefore alter our view from SLIGHTLY BULLISH to BULLISH.

YEN: The YEN fell slightly against the USD last week.

YEN will be driven by BOJ activity this week.

On Wednesday we have the BOJ Policy Rate which is the interest rate levied on excess current account balances held at the BOJ and is expected to remain at -0.10%.

This is followed by the Monetary Policy Statement.

On Thursday we have the BOJ Press Conference.

COT data shows that large commercials increased their net long position from +73,260 to +84,847 last week. We therefore remain BULLISH.

AUD: The AUD fell slightly against the USD last week.

Two items for the AUD this week.

On Wednesday we have the Employment Change figure thought to be 16,300 from 13,500.

This is followed by the Unemployment Rate thought to remain at 5.7%.

COT data shows that large commercials slightly decreased their net short position from -58,061 to -55,374. We therefore remain SLIGHLTY BEARISH.

CNY: Two items for the CNY this week.

On Monday we have Industrial production expected to rise from 6.0% to 6.2%.

This is followed by Fixed Asset Investment thought to rise from 8.1% to 8.2%.

There is no COT data for the CNY.

COT data of note on products we regularly comment on in our DAILY REPORTS and WEEKLY BONUS VIDEOS and for those products which show large commercials with extreme net positions.

RISK:

S&P500: The S&P500 fell slightly last week. Large commercials once again massively increased their net short position from -72,978 to -137,948 last week which is very close to a 52 week high. We therefore alter our view from BEARISH to VERY BEARISH.

RUSSELL2000: The RUSSELL2000 fell meaningfully last week. Large commercials decreased their net short from -26,298 and are now net long +2,118 last week. We therefore alter our view from BEARISH to NEUTRAL.

NASDAQ100: The NASDAQ100 rose slightly last week. Large commercials decreased their net short position from -83,638 to -74,902 last week. We therefore remain SLIGHTLY BEARISH.

COMMODITIES:

GOLD: GOLD fell strongly last week. Large commercials decreased their net short position from -179,907 to -152,648 last week. Now that large commercials hold a net short position which is smaller than 200,000 we are slightly bullish. We therefore remain SLIGHTLY BULLISH.

SILVER: SILVER fell strongly last week. Large commercials slightly decreased their net short position from -108,010 to -105,862 last week. We therefore remain BEARISH.

COPPER: COPPER fell very strongly last week. Copper is an important metal as it is a leading indicator for many commodities. Large commercial slightly decreased their net short position from -42,726 to -36,369 last week. Large commercials generally carry a net neutral position. This is now a substantial short position and remains close to a 52 week extreme. We therefore remain BEARISH.

CRUDE OIL: CRUDE fell very strongly last week. Large commercials slightly decreased their net short position from -546,016 to -535,499 last week. This continues to be a 52 week extreme. We therefore remain VERY BEARISH.

The gold:silver ratio increased from 68.81 to 70.77 indicating significant silver underperformance last week.

DEBT:

US 30 YEAR BOND: The BOND fell very strongly last week. Large commercials substantially increased their net long position from +48,904 to +72,235 last week. This is now approaching a 52 week extreme and therefore we alter our view from SLIGHTLY BULLISH to BULLISH.

OTHER FX:

CAN$: The CAN$ fell slightly last week. Large commercials meaningfully decreased their net short position from -37,625 to -28,459 last week. We therefore remain SLIGHTLY BEARISH.

NZD: The NZD fell strongly last week. Large commercials decreased their net short position from -5,341 and are now net long +2,252 last week. We therefore alter our view from BEARISH to NEUTRAL.

THOUGHTS FOR NEXT WEEK

What a difference a week makes.

Whilst the last few weeks have witnessed very few changes in our COT readings this week we have a number.

This week is also important as we have a number of Central banks making noise, the most important one being the FED on Wednesday.

A rate hike is widely expected and so therefore the wording is far more important. Are we potentially heading for another 3 hikes this year?

Risk at its all time high needs to beware.

Therefore our recommendations for next week are:

Continue accumulating gold slowly on weakness

Sell risk outright

Buy the GBP

Sell crude.

For timely, accurate trade signals follow our STTS service.

For those who want to join the lucky ones receiving real time, accurate and 100% honest and transparent trade signals visit and subscribe here.

Stay nimble. Good luck trading.



Gold prices pointed higher in Asia on Monday with key central bank meeting to dominate sentiment during the week.

On the Comex division of the New York Mercantile Exchange, gold futures were quoted at $1.205.55 a troy ounce, coming off a nearly 2% drop for the week ended March 10. Also on the Comex, silver futures for May delivery were last quoted at $17.032 a troy ounce, while copper futures were quoted at $2.605 a pound. The red metal recorded a loss of 3.7% for the week ended March 10.

In Japan, core machinery orders for January are due with a 3.3% fall seen year-on-yearand a 0.5% gain expected month-on-month.

Global financial markets will be busy with central bank meetings in the week ahead, with policy decisions due in the U.S., Japan, the U.K and Switzerland. Investors will also keep an eye out for headlines coming out of a two-day meeting of G20 central bankers and finance ministers in Germany for further hints on the strength of the global economy and the future direction of monetary policy.

Last week, gold prices settled lower for the ninth session in a row on Friday, after strong U.S. employment data reinforced expectations of a Federal Reserve interest rate hike next week.

The U.S. economy added 235,000 jobs in February from the prior month, as the construction sector recorded its largest gain in nearly 10 years due to unseasonably warm weather, the Labor Department said Friday. The unemployment rate ticked down to 4.7% from 4.8% in January, even as more people rushed into the labor market.

But average hourly earnings rose just 0.2% in February from a year earlier, below expectations for a 0.3% rise. The small gain lifted the year-on-year increase in earnings to 2.8%, disappointing some investors.

U.S. short-term interest rate futures were little changed following the employment report, according to Investing.com’s Fed Rate Monitor Tool, underscoring the likelihood that the U.S. central bank will raise rates next week and two more times in 2017.



 U.S. crude prices were quoted higher in early Asia on Monday with the market poised for a busy week of central bank policy reviews and reports from the Organization of Petroleum Exporting Counties and the International Energy Agency on global supply and demand levels.

On the New York Mercantile Exchange, West Texas Intermediate crude for April was last quoted up 0.23% to $48.51 a barrel, while on the ICE Futures Exchange in London, Brent oil for May delivery was last quoted at $51.30 a barrel.

Last week, oil futures settled at the lowest level since the end of November on Friday, booking a weekly loss of around 9% as concern over rising shale production and record-high U.S. crude inventories offset optimism that OPEC and its allies have been following through on their commitment to cut production.

Concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand pressured crude prices.

Data from oilfield services provider Baker Hughes on Friday revealed that the number of active U.S. rigs drilling for oil rose by 8 last week, the eighth weekly increase in a row. That brought the total count to 617, the most since October 2015.

Meanwhile, the U.S. Energy Information Administration said on Wednesday that crude supplies jumped by 8.2 million barrels last week to yet another all-time high of 528.4 million. It was the ninth straight weekly build in U.S. stockpiles, feeding concerns about a global glut.

Oil prices have been trading in a narrow $5 range around the low-to-mid-$50s over the past three months as sentiment in oil markets has been torn between rising stockpiles and increased shale production in the U.S. and hopes that oversupply may be curbed by output cuts announced by major global producers.

OPEC and non-OPEC countries made a strong start to lowering their oil output by almost 1.8 million barrels per day by the end of June, but so far the move has had little impact on inventory levels.
Kuwait is scheduled to host a ministerial meeting on March 26 comprising both OPEC and non-OPEC members to review compliance with the output agreement and to discuss whether cuts would be extended beyond June.



Global financial markets will be busy with central bank meetings in the week ahead, with policy decisions due in the U.S., Japan, the U.K and Switzerland.

Investors will also keep an eye out for headlines coming out of a two-day meeting of G20 central bankers and finance ministers in Germany for further hints on the strength of the global economy and the future direction of monetary policy as well as foreign exchange rates.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. Federal Reserve Rate Decision

The Federal Reserve is widely expected to raise the fed funds target range by a quarter point at the conclusion of its two-day policy meeting at 2:00PM ET (19:00GMT) on Wednesday, which would put it in a range between 0.75%-1%.

The U.S. central bank will also release its latest forecasts for economic growth and interest rates, known as the "dot-plot".

Fed Chair Janet Yellen is to hold what will be a closely-watched press conference 30 minutes after the release of the Fed's statement, as investors look for any hawkish change in tone about the economy or future rate hikes.

According to Investing.com’s Fed Rate Monitor Tool, the rate hike this week would be followed by two more increases later this year, next in September followed by another one in December, aligning market expectations with the Fed's current forecast for three rate hikes in 2017.

Besides the Fed, this week's calendar also features U.S. data on inflation, retail sales, building permits, housing starts, initial jobless claims, industrial production, consumer sentiment as well as surveys on manufacturing conditions in the Philadelphia and New York regions.

Headlines from Washington will also be in focus, as traders await further details on President Donald Trump's promises of tax reform and infrastructure spending.

2. Bank of Japan Monetary Policy Decision

The Bank of Japan is seen keeping its short-term policy interest rate at minus 0.1% when it releases its latest rate decision and monetary policy statement at around 03:00GMT Thursday (11:00PM ET Wednesday).

The central bank is also expected to hold the 10-year government bond yield target at around 0%, while maintaining the net amount of Japanese government bonds it buys annually at around 80 trillion yen, as it waits for more evidence of a modest economic recovery.

BOJ Governor Haruhiko Kuroda will hold a press conference afterward to discuss the decision.

3. Bank of England Policy Announcement

The Bank of England will announce its rate decision at 12:00GMT (7:00AM ET) on Thursday, with analysts forecasting no change in policy.

Market players expect BOE policymakers to stick to their neutral stance on whether to cut or raise interest rates as they decide whether the economy needs more monetary stimulus to spur demand in the face of waning consumer spending or an interest rate hike to curb the recent spike in inflation.

The BOE raised its forecasts for growth and inflation last month, but appeared in no rush to raise interest rates as Prime Minister Theresa May intends to trigger the formal process for separating from the European Union by the end of March.

Besides the BOE, traders will focus on monthly unemployment figures for further indications on the continued effect that the Brexit decision is having on the economy.

4. SNB policy assessment

The Swiss National Bank's quarterly policy assessment is due on Thursday at 8:30GMT (3:30AM ET). Most economists expect the central bank’s benchmark interest rate to remain unchanged at -0.75%.

The SNB is also expected to stick to its commitment to foreign currency interventions in order to reduce demand for the franc.

SNB Chairman Thomas Jordan recently repeated that the Swiss franc remains “significantly undervalued” and sounded concerned about the political risks from the European elections and Brexit.

5. G20 Meetings

Finance ministers and central bank heads from the world's 20 developed and developing economies, or the G20, will meet on Friday and Saturday in the German town of Baden Baden to discuss the world economy.

It will be the first such meeting attended by representatives of the administration of U.S. President Donald Trump, who has more protectionist policy views on trade.

A draft communique of this week's get-together showed that the world's financial leaders may no longer explicitly reject protectionism or competitive currency devaluations, promising only to keep an "open and fair international trading system".

The draft drops the phrase adopted by G20 finance ministers last year to "resist all forms of protectionism".



Oil futures settled at the lowest level since the end of November on Friday, booking a weekly loss of around 9% as concern over rising shale production and record-high U.S. crude inventories offset optimism that OPEC and its allies have been following through on their commitment to cut production.

The U.S. West Texas Intermediate crude April contract touched a session low of $48.31 a barrel on Friday, a level not seen since November 30. It was last at $48.49 by close of trade, down 88 cents, or about 1.8%.

The U.S. benchmark lost $4.84, or almost 9%, on the week, its biggest weekly drop in five months.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for May delivery slumped 82 cents, or about 1.6%, to settle at $51.37 a barrel by close of trade. The global benchmark fell to $51.14 earlier, its cheapest since November 30.

For the week, London-traded Brent futures recorded a loss of $4.53, or 8.1%, the fifth straight weekly decline.

Concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand pressured crude prices.

Data from oilfield services provider Baker Hughes on Friday revealed that the number of active U.S. rigs drilling for oil rose by 8 last week, the eighth weekly increase in a row. That brought the total count to 617, the most since October 2015.

Meanwhile, the U.S. Energy Information Administration said on Wednesday that crude supplies jumped by 8.2 million barrels last week to yet another all-time high of 528.4 million. It was the ninth straight weekly build in U.S. stockpiles, feeding concerns about a global glut.

Oil prices have been trading in a narrow $5 range around the low-to-mid-$50s over the past three months as sentiment in oil markets has been torn between rising stockpiles and increased shale production in the U.S. and hopes that oversupply may be curbed by output cuts announced by major global producers.

OPEC and non-OPEC countries made a strong start to lowering their oil output by almost 1.8 million barrels per day by the end of June, but so far the move has had little impact on inventory levels.

Kuwait is scheduled to host a ministerial meeting on March 26 comprising both OPEC and non-OPEC members to review compliance with the output agreement and to discuss whether cuts would be extended beyond June.

Elsewhere on Nymex, gasoline futures for April shed 2.4 cents, or about 1.5% to $1.600 on Friday. It ended down about 3.2% for the week.

April heating oil inched down 2.5 cents, or 1.7%, to finish at $1.503 a gallon, the lowest since November 30. For the week, the fuel lost roughly 5.7%.

Natural gas futures for April delivery rose 3.4 cents, or almost 1.2%, to $3.008 per million British thermal units. It posted a weekly gain of 6.4%.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Meanwhile, investors will keep an eye out for monthly reports from the Organization of Petroleum Exporting Counties and the International Energy Agency to gauge global supply and demand levels.

Traders will also continue to pay close attention to comments from global oil producers for further evidence that they are complying with their agreement to reduce output this year.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, March 14

The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.

Later in the day, the American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, March 15

The International Energy Agency will release its monthly report on global oil supply and demand.

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, March 16

The U.S. government is to produce a weekly report on natural gas supplies in storage.

Friday, March 17

Baker Hughes will release weekly data on the U.S. oil rig count.




 U.S. crude fell in early Asia on Monday with the market poised for a busy week of central bank policy reviews and reports from the Organization of Petroleum Exporting Counties and the International Energy Agency on global supply and demand levels.

On the New York Mercantile Exchange, West Texas Intermediate crude for April dipped 0.87% to 0.$48.07 a barrel, while on the ICE Futures Exchange in London, Brent oil for May delivery was last quoted at $51.30 a barrel.

Last week, oil futures settled at the lowest level since the end of November on Friday, booking a weekly loss of around 9% as concern over rising shale production and record-high U.S. crude inventories offset optimism that OPEC and its allies have been following through on their commitment to cut production.

Concerns that the ongoing rebound in U.S. shale production could derail efforts by other major producers to rebalance global oil supply and demand pressured crude prices.

Data from oilfield services provider Baker Hughes on Friday revealed that the number of active U.S. rigs drilling for oil rose by 8 last week, the eighth weekly increase in a row. That brought the total count to 617, the most since October 2015.

Meanwhile, the U.S. Energy Information Administration said on Wednesday that crude supplies jumped by 8.2 million barrels last week to yet another all-time high of 528.4 million. It was the ninth straight weekly build in U.S. stockpiles, feeding concerns about a global glut.

Oil prices have been trading in a narrow $5 range around the low-to-mid-$50s over the past three months as sentiment in oil markets has been torn between rising stockpiles and increased shale production in the U.S. and hopes that oversupply may be curbed by output cuts announced by major global producers.

OPEC and non-OPEC countries made a strong start to lowering their oil output by almost 1.8 million barrels per day by the end of June, but so far the move has had little impact on inventory levels.

Kuwait is scheduled to host a ministerial meeting on March 26 comprising both OPEC and non-OPEC members to review compliance with the output agreement and to discuss whether cuts would be extended beyond June.





Thanks to the strongest increase in private payrolls since April 2014, the U.S. dollar extended its gains against all of the major currencies. ADP reported a 298K rise in corporate payrolls in February, which was not only higher than the previous month but also significantly better than the 187K forecast. Economists believe that job growth slowed last month but Wednesday’s report will have investors looking forward to a solid labor-market report on Friday. A lower unemployment rateand stronger wage growth had been on the docket for some time but payroll growth was expected to slow from 227K in January to 174K in February. However after Wednesday's ADP report, the consensus forecast climbed to 200K and could increase further as banks adjust their estimates. The problem for the dollar is that Fed fund futures are now pricing in a 100% chance of a March rate hike and a solid NFP cannot increase those odds further. Where it will make a difference is in June as the futures currently show only a 50% chance of tightening at the next quarterly meeting. Judging from Wednesday’s move in the dollar, there is still money on the sidelines waiting for hawkishness from Janet Yellen, so there could still be a push higher on FOMC day if Yellen signals more rate hikes in the near future. In the meantime, we expect buyers to sweep in on USD/JPY dips ahead of Friday’s nonfarm payrolls. USD/JPY tested its March 114.75 high Wednesday and failed to break resistance. We still believe that 115 will be tested pre-NFP. Jobless claims and the Challenger layoff report are scheduled for release Thursday and these reports are likely to confirm labor-market strength.

While NFPs will be in the back of everyone’s minds, the European Central Bank’s monetary policy announcement will be front and center on Thursday. The ECB is widely expected to keep policy unchanged but between its quarterly economic forecasts and Mario Draghi’s press conference, we can be assured that there will be wild swings in Thursday's EUR/USD. Since the last monetary policy meeting in January, inflation picked up significantly with widespread improvements in manufacturing- and service-sector activity. The German labor market also benefitted from healthier labor-market conditions but the ECB said on a few occasions that it would look past temporary increases in inflation. More recent data like the German IFO report, trade balance and industrial production showed pockets of weakness. And that will worry a central bank that's not convinced that the rise in inflation and the general recovery is durable. So while EUR/USD could pop on upgraded economic forecasts, Mario Draghi will most likely talk down the currency, which could erase any earlier gains. At the end of the day, the ECB wants the euro to remain weak to support the economy and it will do everything in its power to prevent the euro from rising including downplaying or flat out dismissing upgraded inflation and GDP forecasts. EUR/USD support is at 1.05 and resistance is at 1.0640.



All 3 commodity currencies traded lower on the back of U.S. dollar weakness and surprisingly soft Chinese trade numbers. While everyone was looking for a smaller Chinese trade surplus in February, no one anticipated a deficit. China reported its weakest trade balance in 3 years as exports fell and imports soared. Part of the deterioration had to do with Lunar New Year distortions but higher commodity prices and stronger domestic demand also contributed to the shift. Exports are expected to recover in the coming months but China’s currencyand trade balance will remain a hot topic for the Trump Administration. In the near term, the pressure on AUD and NZDwill come from the U.S. dollar or commodity prices -- not China’s economic outlook. Nine days have past without a rally for NZD/USD. The currency extended its losses on the back of Tuesday’s drop in dairy prices. Although New Zealand’s economy has been struggling, NZD weakness will help to boost inflation and support growth. USD/CAD came within striking distance of 1.35 as oil prices tumbled. Stronger-than-expected Canadian housing data failed to stem the slide in the currency. The trend is strong but 1.35 is an important resistance level that USD/CAD may find difficult to break ahead of Friday’s Canadian and U.S. economic reports.

The British pound extended its losses versus the U.S. dollar despite the government’s decision to upgrade GDP forecasts to 2% for 2017 from a previous forecast of 1.4%. Growth estimates for 2018, 2019 and 2020 were revised lower. These changes in the U.K.’s Spring Budget are a reflection of the government’s view of how Brexit will impact the economy. This year will be about planning and initiating the U.K.’s divorce from the European Union and the next few years will be when the pain is felt. The Office for Budget Responsibility expects a deficit of 2.6% of GDP in 2016-2017 and plans to cut borrowing by GBP23.5 billion pounds over the next 4 years. With that in mind, the government also plans to build a reserve fund in case extra spending is needed to help navigate Britain’s economy through a Brexit slowdown. In the meantime, spending will be supported by higher taxes -- the government announced a reduction in the tax-free dividend allowance and a two-tier sugar tax. As we can see in GBP's performance, these changes did not help the currency. Investors remain nervous about holding sterling ahead of the potential trigger of Article 50 next week.



Wall St closed lower on Wednesday, as energy stocks weighed, after oil prices slumped more than 5% while investors digested a better than expected ADP report ahead of Non-farm payrolls.

Energy stocks were the main laggards of the session, as oil posted its worst day in 13 months, after crude oil inventories rose much larger than expected.

Meanwhile, a bullish ADP report boosted expectations the Federal Reserve will increase interest rates at its next meeting in March and lifted optimism for a better than expected Non-Farm Payrolls print on Friday.

ADP and Moody’s analytics said Wednesday, employment in the private sector climbed by 298,000 for the month, which dwarfed economists’ expectations of 190,000.

According to Investing.com’s Fed rate monitor tool, nearly 90% of traders expect a rate hike in March, compared to just under 80% last week.

The Dow Jones Industrial Average closed 0.33% lower at 20,855.73. The S&P 500 shed 0.12% and the Nasdaq Composite gained 0.06% to close at 5,837. The Dow closed lower for a third straight session.

In corporate earnings news, Urban Outfitters Inc (NASDAQ:URBN) shares slumped to a 14-month low of $22.87 intraday, after the retailer revealed earnings of $0.55 per share against estimates of earnings of $0.56 per share.

The top S&P 500 gainers included H&R Block Inc (NYSE:HRB) up 14.9%, and TripAdvisor Inc (NASDAQ:TRIP) up 6.1%, while PPG Industries Inc (NYSE:PPG) added 1.6%.

Marathon Oil Corporation (NYSE:MRO) down 8.7%, Murphy Oil Corporation (NYSE:MUR) down 6.7% and Deep Value (NYSE:DVP) slumped 6.5%, were among the worst S&P 500 performers of the session.



Crude prices saw a 1% decline on Wednesday after the US Energy Information Administration reported earlier today that oil inventories increased by 8.2 million barrels in the week ending March 3 to 528.4 million.

At 5:05 pm CET, Brent for May delivery saw a decrease of over 1% to $55.04 a barrel while WTI for June delivery fell to $53.13 per barrel.



Oil prices dropped 3% on Wednesday after the Energy Information Agency (EIA) announced that the number of inventories in the United States increased for the ninth week in a row. EIA said the inventories increased by 8.2 million barrels in the past week.

West Texas Intermediate (WTI) for April dropped 3.12% to go for $51.41 per barrel at 6:13 pm CET. Meanwhile, Brent dropped 3.06% to $54.23 per barrel at 6:14 pm CET.




Revised the count. USOIL is still following the path as outlined in my previous posts so no big change is needed. 

USOIL won't stop the slide until seeing at least $48.28. On the other hand, A double of  this correction will be too deep (below $44) though.




The latest leg of the relentless rally in U.S. stocks since Donald Trump was elected president has all the hallmarks of being driven more by sentiment than sense, but that doesn't mean the ride is over, although it could well be a bumpier one from here.

The U.S. stock market, which has been hitting new highs almost every day, is more expensive than it has been since 2004. Trump's address on Tuesday to Congress sparked another buying frenzy, as the reset in the president's often bombastic tone to an uncombative stance ignited investor optimism - even though his speech was light on details of waited-for initiatives.

Growing expectations of faster interest rate rises at the Federal Reserve helped fuel the rally, with bank shares leading Wednesday's gains.

The stocks rally since November has been driven by an expectation that Trump's push for deregulation tied to increased infrastructure spending and corporate tax cuts will jolt economic growth - and company earnings.

However, investors caution that the tough job is now to come: pushing promised policy changes through Congress, which has proven less than easy even on issues Republicans agree on such as repealing Obamacare.

"If Trump delivers on some milestones that are relatively meaningful - corporate tax reform, deregulation ... then I think the markets continue to rally, but if none of that happens people start to take risk off the table," said Northern Trust (NASDAQ:NTRS) chief investment officer Bob Browne, who is overweight U.S. equities.

Equities are surely richly priced. Since the 12 percent advance on the S&P 500 since the Nov. 8 election, investors are now paying $18 for every $1 in expected earnings over the next 12 months - the highest forward price-to-earnings valuation in 13 years according to Thomson Reuters Datastream.

Still, large investors such as Warren Buffett are optimistic. Buffett told CNBC earlier this week that the U.S. stock market was cheap with interest rates at current levels, although he conceded that U.S. shares could conceivably "go down 20 percent tomorrow."

But Buffett said he was "baffled" about who would buy a 30-year bond at current yields.

Rich valuations are not a sell signal in themselves, since in the later stages of a bull market - which can last years - "corporate earnings are cyclically elevated and the multiple that the market assigns to those earnings is often elevated as well," according to a note from analysts at Bank of America/Merrill Lynch on Wednesday.

The BAML analysts raised their year-end target for the S&P to 2,450, or about 2 percent above the current level, noting that they expect the benchmark to slide below 2,230 at one point before 2018.

Even so, the high expectations on policy execution and the elevated valuation leave stock investors exposed.

"Expectations today are quite optimistic relative to the likelihood of delays, friction and more negative offsets than the market is currently pricing in," wrote the BAML analysts.

The lack of detail on Trump's speech Tuesday regarding tax reform concerned some investors.

Scott Clemons, chief investment strategist at Brown Brothers Harriman in New York, said tax reform got "really, really short airtime" and it appeared to be a "secondary priority."

But Clemons said any market pullback on that front would be short-lived because of the expected strength in corporate earnings.

Earnings for the S&P are expected to rise more than 10 percent over the full year, according to Thomson Reuters I/B/E/S data. But that number has been trending lower. For the current quarter, analysts see earnings rising 10.6 percent, down from an 18 percent estimate in April and a 13.8 percent gain seen in January.

FED HEADWINDS

With Trump's speech light on details, the market focused on the growing expectations that the Federal Reserve will hike interest rates sooner and maybe more times this year than previously thought. Investors now see a 65 percent chance that the Fed will move to raise rates later this month, up from 35 percent Tuesday.

But higher rates, which buoyed investor optimism because a March rate hike would signal policymakers' growing confidence in the economy, would be a double-edged sword for equity investors.

The dollar has risen on the view of higher interest rates, with the 100-day average of the dollar index (DXY) at its highest since 2003.

Every 5 to 6 percent increase in the dollar results in negative earnings revisions of about 3 percent on the S&P 500, as sales in other currencies are converted to fewer dollars.

Higher rates at the Fed also mean companies spend more on credit. After a period of nearly a decade in which the Fed did not raise rates, increases can creep up in a company's expenses and generate unwanted risk for investors.

Plus there's the added risk of uncertainty over how the Fed will shape its policy in the coming year, as six of the eight permanent-voting positions at the Fed could all have new occupants due to term endings and currently open spots.

"I'm more worried a year from now when we have no idea what the Fed board will look like," said David Kotok, chief investment officer of Cumberland Advisors.

"It means you have a complete unknown about who is going to make the Fed policy and what it will be."



SolarCity, which was acquired by Tesla (NASDAQ:TSLA) Inc at the end of last year, slashed nearly 20 percent of its staff in 2016 as it sought to preserve cash amid slowing growth in the rooftop solar industry.

In a regulatory filing on Wednesday, SolarCity said it had 12,243 employees at the end of 2016, down 19.8 percent from the 15,273 it reported a year earlier.

The cuts affected workers in operations, installations, manufacturing, sales and marketing, according to the filings. The number of people in general and administrative jobs has also fallen since June of last year, the company said.

SolarCity had announced job cuts before being acquired by Tesla but did not say how many employees would be laid off. Earlier in the year, it eliminated 550 jobs in Nevada after the state scrapped a key solar incentive.

SolarCity officials were not immediately available for comment.

The contraction in its workforce marked a sharp reversal from the company's explosive growth in previous years. In 2015, the number of SolarCity employees swelled by 68.7 percent.

SolarCity, founded by the first cousins of Tesla founder Elon Musk, rose rapidly to become the nation's top rooftop solar installer thanks to innovative no-money-down financing schemes and a vast sales operation. The company at one time had bold ambitions of having 1 million customers by 2018, but began scaling back its plans at the end of 2015 as costs for funding that growth mounted and demand began to slow.

By the middle of 2016, SolarCity had agreed to be acquired by Tesla, which said last month it was cutting spending on solar advertising in part by preparing to sell rooftop systems in Tesla's network of retail stores.

The company is also shifting to more cash sales of systems instead of leases in order to generate cash and deliver the cost savings it promised investors would come from the acquisition.

Also in the annual filing, SolarCity said sales and marketing expenses fell 3 percent in 2016, in part due to staff cuts and efforts to boost sales efficiency.




U.S. equities set a new all-time high close, after the Dow closed above 21,000 and the S&P 500 breached 5400 for the first time ever, buoyed by President Trump’s address to congress.

President Donald Trump’s highly anticipated speech to Congress on Tuesday, provided the backdrop for a positive start to the U.S. trading session, as investors shrugged off the lack of specific details on tax reform and deregulation and focused on the positive and measured tone of his message.

The Dow closed more than 300 points higher, helped by a broad based rally in Financials, mostly banks, as investors priced in the positive effect of higher interest rates on major U.S. banks, on the back of Hawkish comments from Fed Presidents Williams, Dudley and Harker on Tuesday.

Meanwhile top-tier economic data was closely monitored by investors, as February Manufacturing beat expectations while January U.S. construction spending was weaker than expected.

The February ISM manufacturing index rose to 57.7, which beat expectations of 56.0 reading while construction spending fell 1 percent in January, well below expectations of 0.6% increase.

The Fed’s Beige book was also in focus on Wednesday, and it showed that U.S. business were less optimistic on economic conditions than in the previous report in January.

In corporate news, the Snap Inc. initial public offering (IPO) continued to be a topic of interest among investors ahead of its IPO on Thursday while Box Inc (NYSE:BOX) shares tumbled in after-hours trade despite better-than expected earnings.

Box reported an earnings loss of 10 cents per share on revenue of $109.9 million compared to analysts' expectations of a loss of 14 cents per share on revenue of $108.9 million.

The Dow Jones Industrial Average closed up 303 points at 21,115.55 The S&P 500 gained 1.37% while the Nasdaq Composite surged to close at 5904.03 up 1.35%.

The top S&P 500 gainers included Lowe’s Companies Inc (NYSE:LOW) up 9.5%, Wynn Resorts Limited (NASDAQ:WYNN) up 7.2% and Mylan Inc (NASDAQ:MYL) up 6.8%.

Endo International PLC (NASDAQ:ENDP) down 6.2%, Best Buy Co Inc (NYSE:BBY) down 4.5% and First Solar Inc (NASDAQ:FSLR) slumped 3.2%, were among the worst S&P 500 performers of the session.



Here we can see price is giving us different hints of its reversal. First, it's right in the previous resistance zone (where sellers are ready to join the market), second, there's a Bat patterncompleting there, in confluence with a . 618 retracement of the previous bigger leg. 
In addition to that, you can see the RSI is overbought. 
The final sell signal comes from the shooting star that has been formed right now. 
Stops should be above 1,34 level, target1 at roughly 1,25:1 RR, target2 along with bat's target2. 



Markets in the United States closed in the green on Monday as both the Dow and the S&P finished a day of trading at record levels. The blue chips index closed at a 12th straight record close, continuing the winning streak last recorded in 1987. Overall, investment incentives remained positive among the traders as they continued to anticipate US President Donald Trump’s speech in Congress set for tomorrow. The president is expected to touch a range of issues, including tax, border reform and many other deregulations his administration intends to impose.

The Dow Jones Industrial Average Index finished a day of trading 0.08% higher, reaching an all-time high for a 12th consecutive session. The index added 20 points with Caterpillar as the main advancer, increasing 2.05% after Trump promised to improve US infrastructure, including roads and tunnels.

The S&P 500 added 0.10% at the close, led by the gains in the energy sector.

The Nasdaq 100 closed 0.08% in the green.



U.S. equities closed modestly higher on Monday, as investors waited for a key speech from President Donald Trump.

President Trump’s promises on tax reform, deregulation and infrastructure spending have been major catalysts in the so-called ‘Trump rally’, which has seen U.S. equities climb as much as 10% since Trump’s election victory.

President Trump is set to address Congress on Tuesday, as investors eagerly await clues about the administration’s plans for tax reform and deregulation.

U.S. equities raced to a higher close, despite the release of mixed U.S. economic data, after U.S, pending home sales missed expectations while durable goods orders for January were better than expected.

The National Association of Realtors said pending home sales were down 2.8%, which missed analysts’ expectation of a 0.8% rise in January while the Commerce Department said that orders for durable goods rose 1.8% in January against expectations of 1.7% increase.

Elsewhere, Dallas Fed President Robert Kaplan reiterated his view that the rate hike should be sooner rather than later, which reinvigorated traders' hopes of a march rate hike.

In corporate earnings news., Tesla (NASDAQ:TSLA) shares closed more than 4% lower at $246.23, after Goldman Sachs downgraded Tesla to a sell, following a disappointing fourth-quarter earnings report from the electric car manufacturer.

The Dow Jones Industrial Average closed up 15 points at 20,837. The S&P 500 gained 0.1% while the Nasdaq Composite ticked higher to close at 5861.90 up 0.28%.

The top S&P 500 gainers included Illumina Inc (NASDAQ:ILMN) up 4.3%, and Southwestern Energy Company (NYSE:SWN) up 3.5%, while National Oilwell Varco Inc (NYSE:NOV) added 3.5%.

The AES Corporation (NYSE:AES) down 6.6%, Newmont Mining Corporation (NYSE:NEM) down 5.8% and NRG Energy Inc (NYSE:NRG) slumped 4%, were among the worst S&P 500 performers of the session.



Markets in Europe closed mixed on Monday as investors digested United States President Donald Trump's announcement that he plans to increase the country's military budget by $54 billion. Traders also focused on Trump's meeting with healthcare insurance CEOs. Earlier in the day, stocks were dragged down by the news that a merger of London Stock Exchange Group and Deutsche Boerse is unlikely.

The FTSE 100 increased 0.13%. Bunzl led the gains as it jumped 3.27%.

The DAX closed 0.16% in the green. Adidas led the gains as it surged 3.88%. 

The CAC 40 edged down 0.01%.

The euro climbed 0.54% compared to the dollar to change hands for 1.9062 at 5:34 pm CET and it rose 0.49% against the yen to sell for 118.968 at 5:33 pm CET. Sterling lost 0.47% against the euro to go for 1.1740 at 5:34 pm CET.



Oil futures barely budged Monday, with a rise in last week’s number of active oil rigs in the U.S. offering another sign that U.S. production is set to contribute to a global glut of supplies despite efforts by other major oil producers to cut output.

West Texas Intermediate crude tacked on a few cents per barrel, while Brent crude ended a few pennies lower but overall, both have stuck to a tight trading range for weeks.

WTI oil prices have been trading between $50 and $55 this entire year, “which is a relatively narrow range for prices to maintain for months…and a breakout will eventually happen,” said Daniel Waters, commodity analyst at Schneider Electric. “The question is: in what direction?”

On the New York Mercantile Exchange, April WTI crude CLJ7, +0.09%  added 6 cents, or 0.1%, to settle at $54.05 a barrel. The April contract for Brent crudeLCOJ7, -0.23%  on London’s ICE Futures exchange, which expires Tuesday, fell 6 cents, or 0.1%, to $55.93 a barrel.

Over the past week, “hedge funds have increased net-long positions in the WTI contract by 6%, which is a signal that managed money believes the breakout will be to the upside,” said Waters, in a note Monday. But “interestingly enough, this convergence of bets to the upside also creates a downside risk, in the event these positions exit relatively quickly on changing sentiment. This could happen if the OPEC deal shows any signs of weakness, specifically if members currently complying being to cheat—even slightly.”

The Organization of the Petroleum Exporting Countries and almost a dozen other oil producing nations such as Russia, reached an agreement in December to slash their output by 1.8 million barrels a day to eliminate at least 2% of global oil supply.

Though the current pace of U.S. growth is still insufficient to derail OPEC’s plan, U.S. shale producers are seen springing back to the oil patches to capitalize on the rising prices, said Stuart Ive, a client manager at OM Financial.

Last week, the number of active oil rigs in the U.S. rose by another five to a total of 602, according to data from Baker Hughes BHI, +0.75%

The climb in oil rigs count comes at a time when U.S. production is nearly at a one-year high. In the week ended February 17, U.S. shale producers pumped 9 million barrels a day, the highest level since April.

Assuming the U.S. oil rig count stays at current levels, oil production there would see a year-over-year increase of 435,000 barrels a day in the fourth quarter this year across the Permian, Eagle Ford, Bakken and Niobrara shale plays, said Goldman Sachs.

For this week, oil traders will be eyeing the weekly U.S. crude inventories and production report as well as the China’s February manufacturing figures as a gauge for global oil supply and demand. Both data are due to be released on Wednesday.

On Nymex Monday, prices for petroleum products settled on a mixed note, with March contract expirations at Tuesday’s settlement contributing to volatility. March gasoline RBH7, +1.20% rose 1.8 cents, or 1.2%, to $1.533 a gallon and March heating oil HOH7, +0.09%  ended at $1.640 a gallon, almost unchanged from Friday.

April natural gas NGJ17, -3.41%  lost 9.4 cents, or 3.4%, to $2.693 per million British thermal units as forecasts for warmer weather dulls demand prospects for the fuel. Prices have posted losses in each of the last four weeks.




NEW YORK (Reuters) - Billionaire investor Warren Buffett told CNBC on Monday his conglomerate Berkshire Hathaway (NYSE:BRKa) Inc had more than doubled its stake in Apple Inc. since the end of 2016, making it one of Berkshire's biggest equity holdings, and that U.S. stocks overall were not in "bubble territory."

"Apple strikes me as having quite a sticky product and an enormously useful product to people that use it, not that I do," said Buffett, chairman and chief executive of Berkshire Hathaway. He said Berkshire's Apple stake, currently at about 133 million shares, was worth about $18 billion based on Friday's closing price and amounted to Berkshire's second-biggest holding.

At the end of Dec. 31, Berkshire had held 61.2 million shares for a total of $6.75 billion, according to regulatory filings. Buffett said his ambitious move into Apple shares (NASDAQ:AAPL) was piggybacking on the initial investment made by Buffett's deputy investment managers, Todd Combs and Ted Weschler.

Apple Chief Executive Tim Cook had done a "terrific job," Buffett said, but added he had not bought shares since the company's earnings report.

Buffett, 86, who told the cable television network that Berkshire had spent about $20 billion on stocks since just before the Nov. 8 U.S. election, also said the U.S. stock market was cheap with interest rates at current levels.

Benchmark 10-year U.S. Treasury notes last yielded 2.333 percent in morning U.S. trading.

Buffett said it was extremely difficult to attempt to find a floor in stock prices and that he did not know what would happen in the near term in the equity market.

He said U.S. shares could conceivably "go down 20 percent tomorrow."

Buffett said Berkshire's positions in airlines remained unchanged. He said pricing shares of airlines has historically been a "very tough game" and he had never met the chief executives of the four airlines in which Berkshire holds stakes.

Berkshire reported a $9.3 billion airline stake at the end of Dec. 31, according to Securities and Exchange Commission filings, with investments topping $2.1 billion in each of American Airlines Group Inc, Delta Air Lines Inc (NYSE:DAL), Southwest Airlines Co and United Continental Holdings Inc.

Buffett, who was a vocal supporter of Democratic presidential candidate Hillary Clinton, said he would judge U.S. President Donald Trump based on how safe the country is in four years. He said he would also judge the Republican president according to how the U.S. economy performs overall and how wide participation in a better economy extends.

Despite his disagreement with some of Trump's policies, Buffett said the U.S. economy would be better off in four years under any president. He said that U.S. Secretary of State Rex Tillerson made "a lot of sense."

On Kraft Heinz's snubbed bid for Unilever (LON:ULVR), Buffett said it was never intended to be a hostile offer and that there was not a "backup deal." Berkshire is a key investor in Kraft Heinz.

"Will there be another deal at Kraft Heinz some day? My guess is yes, but who knows when, I mean, there’s no backup deal, and again, it would have to be friendly and frankly, the prices in that field make it very, very, very tough to make an intelligent deal."

Asked about Berkshire's $86 billion cash pile, he said the conglomerate was "always looking" for acquisitions but that there was "nothing close."

Buffett said it was enormously important for the U.S. economy to have 30-year government-guaranteed mortgages, but that mortgage giants Fannie Mae and Freddie Mac were not necessary in order to accomplish that.

On 30-year U.S. Treasury bonds, Buffett said: "It absolutely baffles me who buys the 30-year bond" and that doing so was not sensible at current yields. U.S. 30-year government bonds last yielded 2.964 percent.

Buffett reiterated that Americans are better off buying plain-vanilla index funds than committing money to active managers. He added that the hedge fund industry's standard fee structure of 2 percent of assets and 20 percent of investment gains "borders on obscene."

In an annual letter to shareholders on Saturday, Buffett slammed fee-hungry investment managers: "When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients."

Buffett praised Amazon (NASDAQ:AMZN) Chief Executive Jeff Bezos as possibly the best manager he had ever seen and said Berkshire "missed big time" by not purchasing Amazon shares early on.

He said the U.S. economy was doing "terrific," even at just 2 percent growth per year.




THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR

In conclusion to our report three weeks ago we wrote:

"We continue to be bearish on the commodity backed currencies.

We continue to remain bullish on the YEN.

We stay wary of risk and continue selling into strength.

Gold is becoming interesting as a small long play.

We like the 30 Year Bond.

Therefore our recommendations for next week are:

Start accumulating gold slowly

Continue selling risk especially if YEN shows accelerated signs of strength

Stay wary of the commodity backed currencies

Continue accumulating the 30 Year Bond."

Now let's see how we fared on our recommendations:

Accumulating gold was a bold and good move

Selling of risk especially if YEN appreciates continues to be a good idea

Staying wary of commodity backed currencies resulted in a non event as the CAD, AUD and NZD all closed virtually unchanged

Buying the 30 Year Bond was a good call as it rallied strongly.

Overall a good week.

A very quiet week in terms of data.

USD: The US$ Index closed slightly higher last week.

A busy week for the USD.

On Monday we have Core Durable Goods which measures the change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items. It is expected to remain unchanged at 0.5%.

On Tuesday we have GDP thought to rise from 1.9% to 2.1% and Consumer Confidence anticipated to decline slightly from 111.8 to 111.1.

On Wednesday we start with Manufacturing PMI thought to make a marginal increase from 56 to 56.1 followed by Crude Oil Inventories.

Thursday we have the usual Unemployment Claims figure estimated to rise slightly from 244,000 to 245,000.

Finally on Friday we have Non-Manufacturing PMI expected to rise from 56.5 to 56.6. Finally the FED Chairperson speaks.

COT data shows that large commercials marginally decreased their net short position in the US$ Index from -52,912 to -51,786 last week. We therefore remain SLIGHTLY BEARISH.

EURO: The EURO fell against the USD last week.

There is no data for the EURO this week.

COT data for the Euro shows that large commercials increased their net long position from +57,439 to +64,249 last week. We therefore remain NEUTRAL.

GBP: The GBP closed slightly higher against the USD last week.

A quiet week in terms of data.

On Wednesday we have Manufacturing PMI which is thought to decline slightly from 55.9 to 55.7.

Thursday sees Construction PMI also thought to decline slightly from 52.2 to 52.1

Finally on Friday we have Services PMI also expected to decline from 54.5 to 54.2.

COT data shows that large commercials slightly increased their net long position from +73,627 to +74,852 last week. We therefore remain SLIGHTLY BULLISH.

YEN: The YEN rose very against the USD last week.

There is only one item for the YEN this week which is Household Spending on Thursday. It is expected to remain unchanged at -0.3%.

COT data shows that large commercials slightly decreased their net long position from +75,506 to +74,141 last week. We therefore remain BULLISH.

AUD: The AUD rose very marginally against the USD last week.

Only one item for the AUD this week which is GDP on Tuesday thought to be +0.7% from the previous -0.5%.

COT data shows that large commercials increased their net short position from -32,507 to -41,636. We therefore remain SLIGHLTY BEARISH.

CNY: Two items for the CNY this week both on Tuesday.

Manufacturing PMI is expected to be 51.2 from the previous 51.3. This is followed by Non-Manufacturing PMI.

There is no COT data for the CNY.

RISK:

S&P500: The S&P500 rose last week. Large commercials decreased their net short position from -23,299 to 21,307 last week. We therefore remain BEARISH.

RUSSELL2000: The RUSSELL2000 fell slightly last week. Large commercials decreased their net short from -57,592 to -46,497 last week. We therefore remain BEARISH.

NASDAQ100: The NASDAQ100 rose last week. Large commercials decreased their net short position from -86,341 to -75,926 last week. We therefore remain SLIGHTLY BEARISH.

COMMODITIES:

GOLD: GOLD rose strongly last week. Large commercials slightly increased their net short position from -127,788 to -139,564 last week. Now that large commercials hold a net short position which is smaller than 200,000 we are slightly bullish. We therefore remain SLIGHTLY BULLISH.

SILVER: SILVER rose strongly last week. Large commercials slightly increased their net short position from -99,027 -102,233 last week. We therefore remain BEARISH.

COPPER: COPPER fell last week. Copper is an important metal as it is a leading indicator for many commodities. Large commercial slightly decreased their net short position from -48,517 to -47,918 last week. Large commercials generally carry a net neutral position. This is now a substantial short position and remains close to a 52 week extreme. We therefore remain BEARISH.

CRUDE OIL: CRUDE closed slightly higher last week. Large commercials substantially increased their net short position from -526,417 to -571,785 last week. This continues to be a 52 week extreme. We therefore alter our view from BEARISH to VERY BEARISH.

The gold:silver ratio increased from 68.78 to 68.61 indicating very slight silver outperformance last week.

DEBT:

US 30 YEAR BOND: The BOND rose last week. Large commercials substantially decreased their net long position from +81,580 to +54,594 last week. We therefore alter our view from BULLISH to SLIGHTLY BULLISH.

OTHER FX:

CAN$: The CAN$ fell slightly last week. Large commercials increased their net short position from -28,193 to -32,520 last week. We therefore remain SLIGHTLY BEARISH.

NZD: The NZD rose very slightly last week. Large commercials decreased their net short position from -5,058 to -4,871 last week. This remains close to a 52 week low. We therefore remain BEARISH.

THOUGHTS FOR NEXT WEEK

Little change as from last week with exception that we turn slightly less bullish on the 30 YEAR BOND after its recent rally.

We continue to dislike risk and like precious metals especially gold. This needs to be bought on weakness which we anticipate we will see in the early part of next week.

Therefore our recommendations for next week are:

Continue accumulating gold slowly on weakness

Continue selling risk especially if YEN shows accelerated signs of strength

Only continue buying the 30 year bond is risk falls.

Stay nimble. Good luck trading.

DISCLAIMER

The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Users acknowledge and agree to the fact that, by its very nature, any investment in CFDs and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.

Any recommendation, opinion or advice contained in such material reflects the views of Vix500, and Vix500 expressly disclaims any responsibility for any decisions or for the suitability of any security or transaction based on it. Specifically, any decisions you may make to buy, sell or hold a security based on such research will be entirely your own and not in any way deemed to be endorsed or influenced by or attributed to Vix500.

Past performance should not be seen as an indication of future performance. Market and exchange rate movements may cause the value of your investment to rise or fall and an investor may not get back the amount invested.

Investors considering opening a self-trading account should limit their exposure to maximum 10% of their investment capital.



MARKETS RECAP

The U.S. dollar closed the week on a mixed note despite the U.S. Federal Reserve releasing the meeting minutesover the week. The minutes published from the January 31 - February 1 meeting showed that the Fed officials werelooking at hiking interest rates sometime soon and also cited the new U.S. official's policies that are seen ashawkish for inflation.


German PPI rose at the fastest pace since 2012

Producer prices in Germany accelerated at the fastest pace in nearly five years in January, according toofficial data from statistics agency, Destatis. German PPI was seen rising 2.4% on a year over year basisin January, accelerating from the 1% increase registered in December. The increase in PPI was the thirdconsecutive month of gains in producer prices and registered the fastest pace of increase since March2012 when PPI jumped 2.6%.

The data beat estimates of an increase of 2%. On amonthly basis, producer prices rose 0.7%, above 0.4%registered in December and beat forecasts of a 0.3%increase. Excluding energy, core PPI increased 0.6% fromDecember on a monthly basis and was seen 1.8% highercompared to a year ago.Higher prices came from all main industrial groups whichincreased in January 2016, but energy prices jumped themost, rising 4%. Similarly, intermediate goods alsoincreased 2.4% while non-durable consumer goods wereup 2.2%.In a separate report, preliminary data showed thatGermany's private sector continued to post an expansionat the fastest pace in nearly ten years. Data from IHSMarkit released during the week for the month of February showed that Germany's composite outputindex increased to a 34-month high of 56.1 in February compared to 54.8 in January. The manufacturingPMI was also seen rising strongly, registering a print of 57.0 from 56.4 in January."The latest PMI adds to our expectations that economic growth will strengthen in the first quarterto around 0.6 percent q-o-q, marking a strong start to 2017," Trevor Balchin, a senior economist atIHS Markit, said.


RBA Minutes focus on exports.

Growth outlook ispositiveThe Reserve Bank of Australia released its meeting minutes from the early February meeting held onFebruary 7th, where interest rates were left unchanged.The minutes revealed that resources exports were expected to make a significant contribution to theoverall output of the economy and thus policy members were optimistic that this could offset the dragfrom falling mining investments."The higher terms of trade represented a boost to national income, which provided some upsiderisks to the domestic forecasts," the Reserve Bank of Australia said in the statement.The policy makers also said that the higher terms of trade represented a boost to the economy andnational income which offers upside risks to the domestic forecasts. This was an upbeat assessmentconsidering that the Australian economy posted a contraction in the third quarter of the year, althoughthe declines were attributed to some temporary factors.

Australia Inflation Rate: 1.5% 

Members of the board also remained optimistic that the weak consumption was likely to have been onlytemporary and expect the fourth quarter GDP numbers to come out stronger. As a result, policy makersnow expect growth to pick up to 3% on a yearly basis by the end of 2017 and expect growth to remainabove estimates thereafter. "The recent pick-up in global inflationary pressures could flow throughto domestic inflation by more than expected," the central bank added.The central bank officials were also optimistic that inflation would gradually pick up, reflecting therising unit labor costs and falling spare capacity


UK's fourth quarter GDP revised higher

The second estimates for the fourth quarter GDP in the UK was revised higher, data from the UK's Officefor national statistics showed on Wednesday. While this was good news on the headline print, theoverall growth for the year 2016 slowed due to a weaker pace of stock-building.

UK Q4 GDP 2016: 0.7% q/q

GDP in the UK expanded at a pace of 0.7% in the three months ending December, data from ONSshowed. This was slightly higher than the initial or preliminary report of 0.6% which was estimated onJanuary 26 and marked a sixteenth consecutive quarterly increase in GDP with the strongestperformance recorded since Q4 of 2015. On a yearly basis, UK's GDP was registered expanding at a paceof 2%, down from the previous year's 2.2% increase.Pushing GDP numbers higher was an increase in manufacturing output which rose to 1.2% frompreviously reported figure of 0.7%. But maining and quarrying sectors posted a decline, falling 7% ascompared to 6.9% decline that was previously reported. Services sector continued to be the maindriving force, expanding at a pace of 0.8% and was unrevised from the previous estimates, whileconstruction output showed a modest increase from 0.1% to 0.2% at the latest revision.Expenditure and net trade continued to contribute to the GDP but gross capital formation fell.Expectations are gloomy as consumer spending is forecast to fall amid signs of slowdown anduncertainties that could be magnified by Brexit


MARKETS PREVIEW

The week ahead brings a new month into focus and with it, fresh set of economic reports. The pace of data gatherssteam mid-week starting Wednesday with the global PMI reports coming out from the Eurozone, UK and the U.S.alongside GDP numbers from Australia, the U.S. and Canada as the busy week ends with Friday's ISMmanufacturing PMI from the U.S. Among the central bank decisions, the Bank of Canada will be holding itsmonetary policy meeting during the week, but no changes to interest rates are expected at this meeting.


Global PMI’s to continue to point to recovery

The week ahead will see the release of the new PMI numbers for the manufacturing sector. Data releasedwill cover the Eurozone, the U.S., the UK, China and Japan. The global manufacturing sector has managed tomaintain its bullish momentum since late last year. Data from the Eurozone has been surprisingly hawkishwith last week's flash PMI's signaling that manufacturing activity continued to rise at a steady pace. The dataalso comes on the back of a solid economic performance from Germany which has continued to post a steadysurplus.Besides the Eurozone, focus this week will be on the UK's manufacturing sector which has managed toremain resilient but data from the past month has shown stagnating wage increases. Market participants willbe looking to see if any of the slowdown in the wage increase has to come from a potential decline in themanufacturing or services sector in the UK.


U.S. President Trump to address Congress

President Trump will be addressing a joint session of the U.S. Congress on Tuesday. The speech is expectedto be a mini-state of the Union address which is likely to see President Trump address the key aspects of thisgovernment so far. For the markets, the speech will be important as some expect the president to announcethe details on the tax reforms which he has promised.The markets will be keenly listening to president Trump to find out more about the tax reform proposals,infrastructure spending among other things which the president is yet to deliver upon. Focus will also be onlowering the taxes for corporate sector and the border tax that Trump has proposed.The speech from the president comes at a time when later in the week, Fed Chair, Janet Yellen will bespeaking on Friday. A hawkish commentary from the Fed chair could mean that the markets will start toincrease further the odds of a rate hike at March, which are still low compared to the June rate hikeprobability.


Eurozone flash inflation data

The week ahead will see fresh flash inflation figures from the eurozone which will no doubt draw muchattention from the investors. The data is due on Thursday. Headline consumer prices in the Eurozone were confirmed at 1.8% on a year over year basis in January and the flash figures for February are expected to rise2%. However, focus will be on the core inflation figures for the month, which is again expected to remain flat,rising at 0.9% on the year in February.The European central bank has repeatedly stressed that the role of core inflation will be more significant inevaluating the sustainability of the price pressures. Therefore as a result, the core CPI numbers will garnermore than the usual attention. A surprise increase in the core inflation data could be positive for the region.The week ahead will also see various regional flash inflation figures including Spain, France and Germanyover the week. The week ahead will also see the Eurozone unemployment rate coming up which is expectedto remain stable at 9.6%.



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