Risk on as North Korea signal disarmament
There was a risk on approach to the market yesterday despite the talk of trade wars. The main factor for risk appetite pick up was that reports were circulating that North Korea is ready to discuss nuclear disarmament under certain conditions. This move pushed safer rates for USD and JPY with GBPUSD pushing above 1.39 and EURUSD higher than 1.24.
South Korean officials met North Korean leader Kim Jong Un on Monday for the first time ever, where he had expressed his willingness to denuclearise if N Korea’s security is assured. However, South Korean President Moon Jae-in said on Wednesday, that sanctions against the neighbouring state will not be eased for the sake of a meeting between the two sides. Talks continue.
Pound Sterling – UK Markets
The Pound has continued to fall against the Euro, now exchanging at €1.11. Similarly, Sterling has seen a slight drop against the US Dollar too, with the exchange rate barely keeping at $1.38.
The UK focus is likely to be on developments in the Brexit negotiations. European Council President Donald Tusk is expected to brief reporters on a future trade deal with the UK. The Pound is reputed to steadily weaken against the Euro over the remainder of the current year. The decline in the Pound to Euro exchange rate is expected to be caused by the Pound’s inability to shake off the shadow that is the country’s current account deficit of 5.0% of GDP.
European shares may have edged down as trade fears came back following Cohn’s departure, however British plane engine maker Rolls-Royce (RR.L) was the best Stoxx index performer, surging 8.5 percent after saying it remained on track to meet its financial goals for 2020.
US Dollar – US Markets
The Euro has seen an increase against the US Dollar, exchanging at $1.24. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, sits at 89.57.
Trade war theme continues, as the White House has its first casualty. Gary Cohn, Donald Trump’s top economic adviser, has quit. His decision to quit on Tuesday night comes after Trump’s decision to impose tariffs on steel and aluminium imports, this was a move he and the treasury secretary, Steven Mnuchin, had challenged.
On the data front, US factory orders fell for the first time in six months in January amid lower demand for transportation and defence equipment. The headline figure fell by 1.4% more than 0.4 decline forecasted.
The US ADP report is forecast to show jobs growth of around 200k in February. This could add to confidence for a similar result in the release of official numbers on Friday. If we see continued strength in the US labour market, it will maintain the focus on prospects for wage growth, which jumped to a post-crisis high of 2.9% last month.
Euro – European Markets
The Euro remains steady against the Pound, with the exchange rate set at £0.89.
It is no surprise that the European shares opened lower on Wednesday after Donald Trump’s economic adviser Gary Cohn’s resignation, which led to lowered expectations for demise of trade war, as Cohn represented the voice of the freedom of trade.
Cohn’s parting shook the markets significantly, with equity markets set to fall on the open throughout the day, until confidence is restored. The pan-European STOXX 600 index was down 0.4 percent, as most of its 17 industry sectors retreated. Germany’s DAX.GDAXI lost 0.5%, while Asian stocks have also declined overnight and it’s looking like it will be in a negative zone today on the open.
President Trump has gestured that he may escalate further, by imposing tariffs on imports of European cars too, while accusing the EU of making it basically impossible for American auto manufacturers to sell their products to the continent. Yesterday’s meeting with Sweden’s Prime Minister Stefan Lofven failed to ease the tension.
Other Currencies – Highlights
Sterling has seen a slight drop against the Australian Dollar, with the exchange rate at 1.77 AUD. The Pound continues to steadily increase against the Japanese Yen, which now stands at 146.68¥.
The resignation of White House economic advisor Gary Cohn did damage to the global markets, as the sessions wound up on Wednesday, Asian bourses were all significantly lower. The Nikkei 225 ended down 0.7% with the ASX 200 down by 1% and all other regional indexes lower.
The Australian Dollar saw a slump overnight, however picked up its pace during early trading in London Wednesday. Australian GDP growth came in at 0.4% for the fourth quarter of 2017, down from an upwardly revised 0.7% in the third quarter, which is beneath the 0.5% growth expected by economists and markets.
China has seen the first drop in its foreign reserves over the last 13 months. China’s foreign exchange reserves fell USD 27 billion to USD 3.13 trillion in February 2018, compared with an increase of USD 21.5 billion in January.