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Daily Market Outlook 29th March
Asian shares inched ahead on Wednesday while the dollar and commodities held gains as investors shook off disappointment about U.S. President Donald Trump's failed healthcare bill and focused on an improving outlook for global growth. The good cheer did not extend to the pound which was on the skids as the British government sent a letter to Brussels formally starting the country's exit from the European Union. The dollar bounced from 4-month lows as a top Federal Reserve official talked of more rate hikes to come while political uncertainties surrounding Britain's exit from the EU pressured European currencies. Fed Vice Chairman Stanley Fischer, one of the more influential policymakers with markets, said two more rate increases this year seemed "about right". The Brexit letter is due to be delivered to Brussels later on Wednesday, triggering years of uncertain negotiations that will test the endurance of the European Union. That came a day after the Scottish Parliament voted in favor of a second independence referendum that would break up the UK. The biggest loser overnight was the South African rand which has shed almost five percent in two sessions on speculation well-respected Finance Minister Pravin Gordhan might lose his job. The dollar pulled away from 4-1/2-month lows against a currency basket on Wednesday after solid data backed expectations for more U.S. interest rate hikes this year, while sterling was knocked by Britain triggering its exit from the European Union. U.S. Federal Reserve Vice Chairman Stanley Fischer also gave the dollar a lift as he said in a television interview that two more increases to U.S. overnight interest rates this year seemed "about right." The Fed raised rates in March, and a majority of the central bank's policymakers foresee at least two more increases this year. Fed Governor Jerome Powell said on Tuesday that the collapse of the healthcare reform bill had made the U.S. central bank's job harder as it tried to anticipate which set of policies would pass. Sterling, meanwhile, wallowed at one-week lows, down 0.3 percent at $1.2412 GBP= as investors braced for British Prime Minister Theresa May's move later on Wednesday to formally file paperwork to leave the European Union. Investors were also assessing news that Scotland's parliament had backed a vote for independence even though the British government said it would not enter independence negotiations with Scotland. Further weighing on the pound, Bank of England interest rate-setter Ian McCafferty highlighted a weak outlook for the economy on Tuesday, and said he did not know if he would vote to increase borrowing costs at the next BoE meeting in May.
U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy was regaining momentum after faltering at the start of the year. The economy's strengthening fundamentals were underscored by other data on Tuesday showing further increases in house prices in January. Robust consumer confidence and rising household wealth from the home price gains suggest a recent slowdown in consumer spending, which has hurt growth, is likely temporary. They also anticipated an increase in their incomes. The survey's so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001. This measure closely correlates to the unemployment rate in the Labor Department's employment report. It is consistent with continued reduction in slack in the labor market, which is near full employment. The Conference Board said the cutoff date for the survey results was March 16. This was a week before Republicans in the House of Representatives failed to pass health legislation to repeal the Affordable Care Act, a stunning political setback for Trump. The Fed raised rates a quarter percentage point at two of its last three meetings, most recently earlier in March. Oil prices on Wednesday extended gains from the previous session, lifted by supply disruptions in Libya and expectations that an OPEC-led output reduction will be extended into the second half of the year. Oil production from the western Libyan fields of Sharara and Wafa has been blocked by armed protesters, reducing output by 252,000 bpd, a source at the National Oil Corporation. The OPEC along with some other producers including Russia, have agreed to cut production by almost 1.8 million bpd during the first half of the year in order to rein in a global fuel supply overhang and prop up prices. But as markets remain bloated halfway into the cuts, there is a broad expectation that the supply cuts will be extended into the second half of the year. Despite the rising consensus of extended cuts, the OPEC-led strategy to re-balance oil markets is not without controversy. As OPEC and especially Saudi Arabia cut their production, other producers not participating in the cuts have been quick to fill the supply gap and gain market share. In the USA in particular, shale oil drillers have seized the opportunity to ramp up output and exports. As a result, China became the third biggest overseas destination for U.S. crude oil in 2016, according to data from the EIA, up from ninth position the previous year.
Asian shares inched ahead on Wednesday while the dollar and commodities held gains as investors shook off disappointment about U.S. President Donald Trump's failed healthcare bill and focused on an improving outlook for global growth. The good cheer did not extend to the pound which was on the skids as the British government sent a letter to Brussels formally starting the country's exit from the European Union. The dollar bounced from 4-month lows as a top Federal Reserve official talked of more rate hikes to come while political uncertainties surrounding Britain's exit from the EU pressured European currencies. Fed Vice Chairman Stanley Fischer, one of the more influential policymakers with markets, said two more rate increases this year seemed "about right". The Brexit letter is due to be delivered to Brussels later on Wednesday, triggering years of uncertain negotiations that will test the endurance of the European Union. That came a day after the Scottish Parliament voted in favor of a second independence referendum that would break up the UK. The biggest loser overnight was the South African rand which has shed almost five percent in two sessions on speculation well-respected Finance Minister Pravin Gordhan might lose his job. The dollar pulled away from 4-1/2-month lows against a currency basket on Wednesday after solid data backed expectations for more U.S. interest rate hikes this year, while sterling was knocked by Britain triggering its exit from the European Union. U.S. Federal Reserve Vice Chairman Stanley Fischer also gave the dollar a lift as he said in a television interview that two more increases to U.S. overnight interest rates this year seemed "about right." The Fed raised rates in March, and a majority of the central bank's policymakers foresee at least two more increases this year. Fed Governor Jerome Powell said on Tuesday that the collapse of the healthcare reform bill had made the U.S. central bank's job harder as it tried to anticipate which set of policies would pass. Sterling, meanwhile, wallowed at one-week lows, down 0.3 percent at $1.2412 GBP= as investors braced for British Prime Minister Theresa May's move later on Wednesday to formally file paperwork to leave the European Union. Investors were also assessing news that Scotland's parliament had backed a vote for independence even though the British government said it would not enter independence negotiations with Scotland. Further weighing on the pound, Bank of England interest rate-setter Ian McCafferty highlighted a weak outlook for the economy on Tuesday, and said he did not know if he would vote to increase borrowing costs at the next BoE meeting in May.
U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy was regaining momentum after faltering at the start of the year. The economy's strengthening fundamentals were underscored by other data on Tuesday showing further increases in house prices in January. Robust consumer confidence and rising household wealth from the home price gains suggest a recent slowdown in consumer spending, which has hurt growth, is likely temporary. They also anticipated an increase in their incomes. The survey's so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001. This measure closely correlates to the unemployment rate in the Labor Department's employment report. It is consistent with continued reduction in slack in the labor market, which is near full employment. The Conference Board said the cutoff date for the survey results was March 16. This was a week before Republicans in the House of Representatives failed to pass health legislation to repeal the Affordable Care Act, a stunning political setback for Trump. The Fed raised rates a quarter percentage point at two of its last three meetings, most recently earlier in March. Oil prices on Wednesday extended gains from the previous session, lifted by supply disruptions in Libya and expectations that an OPEC-led output reduction will be extended into the second half of the year. Oil production from the western Libyan fields of Sharara and Wafa has been blocked by armed protesters, reducing output by 252,000 bpd, a source at the National Oil Corporation. The OPEC along with some other producers including Russia, have agreed to cut production by almost 1.8 million bpd during the first half of the year in order to rein in a global fuel supply overhang and prop up prices. But as markets remain bloated halfway into the cuts, there is a broad expectation that the supply cuts will be extended into the second half of the year. Despite the rising consensus of extended cuts, the OPEC-led strategy to re-balance oil markets is not without controversy. As OPEC and especially Saudi Arabia cut their production, other producers not participating in the cuts have been quick to fill the supply gap and gain market share. In the USA in particular, shale oil drillers have seized the opportunity to ramp up output and exports. As a result, China became the third biggest overseas destination for U.S. crude oil in 2016, according to data from the EIA, up from ninth position the previous year.