Originally published by Rivkin Securities
The US dollar declined with treasury yields on Friday despite a better than anticipated reading of consumer sentiment as investors continued to unwind speculative positions of a more hawkish Fed. The University of Michigan consumer confidence survey (MoM Mar) rose to 97.6 from a previous reading of 96.3 and estimates for 97.0. A measure of the current conditions rose to the highest levels since 2000 highlighting that the key driver of the US economy, household consumption, is likely to remain solid.
This week the market will focus on a number of speeches by Federal Reserve officials including Chicago’s Charles Evans on Tuesday & Friday, Chair Janet Yellen on Thursday, both Dallas’ Robert Kaplan and Minneapolis’ Neel Kashkari on Friday and New York’s Dudley on Saturday.
The week ahead is also filled with key data for the UK as PM Theresa May looks to trigger Brexit negotiations by the end of the month. On Tuesday data is released for inflation, retail, producer and housing prices along with the government’s public finances while on Thursday retail sales data will be released. Since July 2016 core consumer prices have risen from 1.3% year-on-year to 1.6% in January, with producer input costs rising 20% thanks to 17% decline in the British pound. While inflation is tipped to rise to just under 3% by the end of this year, this will largely depend on movements in the currency.
The first chart below shows the pound against the US dollar which has remained within a well-defined trading range over the past five months. Should the currency remain relatively stable towards the end of 2017 we will begin to see the rebasing effect keeping further upside in inflation capped. That is in line with the Bank of England’s thinking and given the temporary nature of these effects are unlikely to look to increase rates before the end of 2017.
Locally the S&P/ASX 200 finished higher on Friday, up +0.24% at 5,799.65 and this morning we can expect a softer start to trade with ASX SPI200 futures down -13 points on Friday. The second chart below shows the benchmark which is now test the key resistance zone between 5,800 and 5,827 for a third time. Over the past three months selling pressure has remained constant around the 5,800 level while a series of higher lows over the same period signals buyers are becoming increasingly more eager as they buy the dips. From a technical point of view this is an encouraging sign and we now look for a break above this region to open up further gains towards the 6,000 level.
Data releases:
· RBA’s Ellis Speaks In Canberra 12:40pm AEDT
· German Producer Prices (MoM & YoY Feb) 6:00pm AEDT
· Chicago Fed Evans Speaks On The Economy And Policy 4:10am AEDT
Chart 1 – GBP/USD
Chart 2 – ASX200 Index
Source: Rivkin, RivkinTrader