OANDA Market Insights podcast (episode 25)

OANDA Senior Market Analyst Craig Erlam reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s big stories: US/EU set for tariff deal, US GDP boost, Facebook shares plummet, Brexit blow for May.

Craig also previews the week ahead with interest rate decisions coming from the Bank of England, Federal Reserve and Bank of Japan, as well as the July US jobs report.

USD/JPY – Japanese yen gains ground on strong inflation report

U.S. Economy grew 4.1% rate in Q2

Easing trade fears provide boost ahead of US GDP

Markets get busy week off to weaker start

Trump $500 billion Chinese tariffs threat weighs on sentiment

Equity markets are trading slightly in the red at the start of the week, a reflection of the slightly risk averse tone stemming from the prospect of the trade conflict escalating in the coming months.

US President Donald Trump has continued to double down on threats against China, warning he is willing to impose tariffs on all goods imports which equates to around $500 billion. While this isn’t the first time he’s suggested this, it does seem he is becoming increasingly frustrated with the process and that he is not getting the results he expected when he first started down this path.

Unless the two countries find a solution in the next couple of months, the next $200 billion of 10% tariffs that were revealed recently will likely be imposed which could be met with similar measures on the US, if previous actions and rhetoric are anything to go by. While the market rally has stalled this year, with trade being a major contributor, they have shown a certain resilience, something that may not last once tariffs start to take their toll on the economy, with price increases for consumers sure to have an impact.

DAX under pressure after Trump threatens currency war

Earnings eyed but trade could once again be key

This week is likely to see focus remain on trade, with Trump not one to take a back seat and remove himself from the spotlight. Earnings season could provide a welcome distraction from the political theatre of trade wars but even here it’s going to feature as tariffs will have an impact on the outlooks of a number of companies and investors will be keen to hear their views. Around a third of S&P 500 companies report on the second quarter, including three of the four FANG stocks which will typically attract plenty of attention.

There are also a number of other events to focus on this week including the ECB meeting on Thursday – although this may be more of a low key affair with the central bank having already laid out plans for the next year. Theresa May will also meet with her cabinet on Monday for their final meeting before the summer recess, in which the Brexit white paper may be discussed, given the widespread opposition to it and apparent rejection of aspects of it by the European Union chief negotiator Michel Barnier. Needless to say, with only months to go until exit day, negotiations are not progressing as hoped.

Trade and currency wars a market threat

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

Dollar Struggles Despite Fed Optimism

Eurozone Manufacturers Still Extremely Bullish Despite Stronger Euro

It’s been a positive start to trading on the first day of the month, with markets in Europe trading well in the green and US futures ticking a little higher as well.

It’s been a busy morning of economic releases and broadly speaking, the data is very positive for the eurozone economy. The region carried some strong momentum into the new year and the latest manufacturing PMIs suggest confidence in the recovery is showing no signs of faltering. The survey for the region as a whole remained at 59.6, slightly shy of last month’s high of 60.1 while still signalling a strong growth outlook for the sector.

The weak euro has played a big role in the strong performance of the sector which has led many to speculate about whether its resurgence over the last year will hinder output going forward. The survey’s we’re seeing suggest manufacturers are not particularly concerned at this stage and are continuing to see strong demand, despite the 20% increase in the value of the euro over the dollar over the last year. The rise against the pound has been far more modest though.

OANDA fxTrade Advanced Charting Platform

UK PMI Slips But Sterling Continues Push Higher

The UK data has been less encouraging as of late and the manufacturing PMI for January was no different, slipping to 55.3 from 56.2 in December. The sector has actually benefited in the post-Brexit world, with the sterling depreciation driving more demand for UK manufactured goods. Unfortunately, it still remains a very small part of the UK economy and the boost seems to be wearing off.

That said, a weaker PMI number this morning did little to shake the pound which is heading back to last week’s highs against the dollar. Cable now finds itself back it pre-Brexit territory, although much of this can be attributed to the greenbacks decline over the last year. The pair found some resistance around 1.4350 but there’s clearly still some bullish appetite there. A break through here could see the pair testing 1.45, which isn’t a million miles from the 2016 highs.

US Data Eyed as Optimistic Fed Fails to Lift the Greenback

The dollar is continuing to have a rough time, even a more optimistic sounding Fed did little to lift the greenback which continues to languish around three year lows. Yields on near-term US debt have risen in the aftermath of the Fed statement, with a rate hike in March now almost entirely priced in and a further two this year around 65% priced in. This would typically be positive for the dollar any gains were short-lived.

There’s plenty more data still to come today, with two manufacturing PMIs from the US as well as unit labour costs, non-farm productivity and jobless claims. Earnings season remains a key focus for investors and some big names are due to report after the close on Thursday, including Amazon, Apple and Alphabet.

Bitcoin Below $10,000 and Looking Vulnerable

Bitcoin is coming under pressure once again today and is trading back below $10,000, a level that has proven difficult to hold below. It’s currently trading down more than 5% on the day though and should we close below here, it could be yet another bearish signal for the cryptocurrency which is already more than 50% below its peak.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.