Macro economics

Analytics on 25/04/2019. Investors digest further corporate results, dollar extends the rally

European markets are trading slightly lower on Thursday, as investors digest another flurry of corporate results. Banking sector is leading the losses after the UK-based Barclays reported that its first-quarter profit fell 10% over the first three months of the year. Shares of the bank declined nearly 2% after the report. On the data front, Spain’s unemployment rate edged closer to 15% over the first three months of 2019, which added to concerns over the euro zone economy in general, following yesterday’s dismal IFO data for Germany.

Against this backdrop, Britain’s FTSE 100 sheds 0.29% to 7,449, France’s CAC 40 is down 0.14 percent to 5,568, while German DAX 30 is flat at 12, 313. US stock index futures point to a lower opening amid mixed corporate results.

The dollar extends the widespread rally, sending the euro to fresh 22-month lows around 1.1130. It looks like the current situation in the market is not due to dollar strength but due to weakness in other currencies, though more positive data from the US give the USD some support. The dollar rallies despite the Fed’s shift to a more dovish rhetoric, which in part can be explained by the fact that other global central banks are even more cautious, citing fears of a more profound slowdown in economic growth and lack of steady signs of a recovery. Considering this, the dollar still looks attractive for buyers, in contrast with the disappointing European fundamentals. However, at some stage, traders could proceed to some profit-taking after a spectacular USD rally. In this case, EURUSD could try to regain the 1.12 handle.

Against the Japanese yen, the dollar is nursing steep intraday losses after yesterday’s spike to fresh 2019 highs around 112.40. Today, the Bank of Japan kept interest rates unchanged and said it would keep ultra-low rates at least until Q1 2020. The central bank has also lowered inflation projection, saying that 2% target won’t be reached until early 2022. The fact that the pair failed to confirm a break above the 112.00 figure shows that the yen remains attractive amid unstable risk sentiment which remains mixed. The immediate support for the greenback remains at 111.65.

Brent crude resumed the rally after some corrective attempts yesterday. The prices extended gains to new early-November highs in the $74.70 area and remain firmly above the $74 handle, as traders continue to assess the potential consequences from tighter US sanctions against Iran. Recently, the market received the additional boost from the Iraq oil minister who said his country committed to OPEC production cut deal. Considering that Iraq has always been a wild card in the deal, these comments provided some relief to investors ahead of the upcoming OPEC+ meeting in mid-May.

Another bullish factor for Brent is the news that Russian oil flows to parts of Europe were halted after customers complained of unusual impurities in the crude. As such, the combination of these factors warrants further upside impetus in the market, at least in the near term.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 2,50 %
Switzerland 3 Month LIBOR Range -0,73 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1,5 %
Australia Cash Rate 1 %
Canada Overnight Rate Target 1,75 %
All rates

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