Market Info

Currency and stock markets very quiet ahead of ECB meeting. No UK economic data scheduled for release today.

08/03/2018 | OzForex



Data Releases:

We expect a range today in the AUD/USD rate of ? to ?. The British Pound was lower for much of the day on Wednesday but a late afternoon rally left it little changed against a recovering US Dollar and the EUR. It was up around four-tenths of a point against both the AUD and NZD and more than three-quarters of a point higher against the CAD. It would be a mistake to read too much into the price action, however. For ten hours from 7am to 5pm London time, GBP/USD was stuck in just a 40 pip range from 1.3855 to 1.3895 as investors tired of over-interpreting the latest Brexit shadow-boxing. Overnight in Asia, the GBP has crept on to a 1.39 ‘big figure’ but no currency pair is more than two-tenths of a point from where it was yesterday afternoon. The EU’s draft guidelines on the UK’s exit from the EU were presented by European Council President Donald Tusk. He struck a conciliatory but realistic tone saying, "The UK will be our closest neighbour and we want to remain friends and partners after Brexit - partners that are as close as possible, just like we have said from the very first day after the referendum." While the guidelines make clear that the EU wants "as close as possible a partnership" after Brexit, it is expected that there will be negative economic consequences. "Being outside the customs union and the single market will inevitably lead to frictions… Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU single market as well as of the UK market… This unfortunately will have negative economic consequences."

The free-trade agreement (FTA) on offer "cannot offer the same benefits as membership and cannot amount to participation in the single market". Mr Tusk said that while Brussels wants an "ambitious" FTA with the UK with zero tariffs on goods but limited access for services, it will "not make trade between the UK and EU frictionless or smoother… It will make it more complicated and costly than today for all of us. This is the essence of Brexit." Responding to the publication of the guidelines, a Downing Street spokesman stressed they were a draft version which had not been formally published. "We look forward to seeing the final guidelines when published and hope they will provide the flexibility to allow the EU to think creatively and imaginatively about our future economic partnership," they said. US stocks and its currency have been out of favour ever since President Trump’s proposed steel tariffs announced last week. The DJIA is down around 1% but volatility has increased substantially with several 300 point intra-day swings. The USD index, meantime, peaked last Thursday morning at 90.50 and has subsequently been back down to 89.00 - its lowest level in just over two weeks. – before a modest rally yesterday to 89.35.

In economic news, the US trade deficit increased to a more than nine-year high in January, with the shortfall with China widening sharply. The Commerce Department said the trade gap jumped 5.0% to $56.6 billion. That was the highest level since October 2008 and exceeded economists’ expectations of an increase to $55.1 billion. The politically sensitive trade deficit with China surged 16.7% to $36.0 billion, the highest since September 2015. The deficit with Canada soared 65% to a three-year high of $3.6 billion. President Trump in late January imposed broad tariffs on imported solar panels and large washing machines, even before last week’s announcement of import tariffs of 25% on steel and 10% on imported aluminum.

After the international trade numbers were released, the Atlanta Fed updated its Q1 GDP forecast. From an annualized pace of 3.5% prior to the data, it now has just 2.8% as the contribution of net exports is even more negative than it had previously assumed. Improving global growth and a weaker dollar have been supporting overseas sales of American-made goods, though not enough to outpace inbound shipments and the Atlanta Fed model currently has trade subtracting -0.59 percentage points from Q1 growth. The US Dollar index opens in Europe this morning around 89.20.