Strong ADP employment report points to strong NFP
According to the ADP we saw the US labour market remain buoyant which is a positive sign ahead of Friday’s Non Farm Payrolls. The ADP employment report which shows private sector job creation saw a headline figure of 235k vs 200k. In addition, December was revised up to 244k.
The stronger-than-expected ADP figure comes as the FOMC continues to deliberate on the pace of interest rate rises this year; however, the focus will be on Friday’s number which is currently expected at 201k.
Pound Sterling – UK Markets
The Pound has slightly recovered against the Euro, now exchanging at €1.12. Sterling remains steady against the US Dollar, with the exchange rate keeping at $1.38.
This Thursday morning saw both equity guides and the pound fall rather flat in London, ahead of the latest monetary policy statement from the ECB later and as the US started to make concessions on trade.
The UK PM Theresa May met Saudi Arabia’s crown Prince Mohammed in Downing Street on Wednesday, where the two countries agreed a goal of 65 billion pounds of mutual trade and investment in the coming years. PM’s office called this a “vote of confidence” in the economy, as Britain moves closer towards parting with the European Union.
The UK GDP growth is expected to flow further in 2018 as public spending cuts and uncertainty caused by Brexit put substantial weight on the economy. The unemployment rate is likely to remain close to its balance rate, which is currently around 4.5%, however wage growth is expected to remain low. Inflation is expected to fall towards the Bank of England’s 2% target over the next year, taking away the pressure off the households’ finances.
US Dollar – US Markets
The Euro remains fairly steady against the US Dollar, exchanging at $1.23. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, sits at 89.64.
The Dollar stabilized against the other major currencies (look at DXY) this Thursday as fears over predictions for a global trade war eased. The fears eased overnight after the White House specified that a number of countries, including Mexico and Canada could be granted immunities from approaching import tariffs on steel and aluminium. This showed the US to have a little less protectionist trade agenda that was initially feared after the resignation of President Trump’s top economic advisor Gary Cohn.
Euro – European Markets
The Euro remains steady against the Pound, with the exchange rate set at £0.89.
The focus on the ECB meeting this Thursday will be on whether it changes its forward guidance on asset purchases, which currently states that they can still be increased in terms of size and/or duration. More hawkish members have argued for an end date, but we believe that it may be too early for the majority to agree to that.
Headline CPI stood at 1.2% in February, while the core measure excluding food and energy was 1.0% – both still well below the goal of ‘close to, but below, 2%’. Hence, a relatively ‘dovish’ communication by ECB President Draghi will persist for now. However, there has been some whispers in the market that ECB may start signposting a reduction of QE for later in the year as growth figures are positive.
Other Currencies – Highlights
Sterling remains steady against the Australian Dollar, with the exchange rate at 1.77 AUD. The Pound has increased against the Japanese Yen, which now stands at 147.33¥.
As the US President Trump is projected to introduce tariffs on steel (25%) and aluminum (10%) this week, tensions are growing in China. This move intends to counter cheap markets, which Trump believes to be undermining US industry and jobs, China being one of the most prominent examples. China’s latest data showed exports surging 44.5% in February from a year earlier. However, Trump is not willing to back away from his push and has addressed China on Wednesday, demanding that it produces plans for reducing its trade surplus with the US by $1billion. Talk continue.
In the meantime, the Bank of Canada holds its cash rate steady this month and warns of ambiguity created by Washington’s increasingly aggressive trade policy. Just as expected by the market, governing council members have voted to hold the cash rate at 1.25%, while observations on the effect take place. Data shows that the Canadian economy grew by a healthy 3% in 2017, which matched earlier projections, although the recent economic data has been rather disappointing.