Good morning,
Clinton vs Trump
The world and his dog will be focusing on the outcome and aftermath of Super Tuesday voting in the United States which, at the time of writing, has seen both Hillary Clinton and Donald Trump take increasingly large steps to become their respective party’s nominees.
We are getting a fair few questions as to when the news from the US General Election will start having an impact on markets and specifically the US dollar. As it stands to us, the fractured nature of the Primary process and the building belief that the Republican Party may face some form of insurrection should Mr Trump win enough delegates to become the Republican candidate certainly extends our thoughts that further volatility is to come.
Canada’s economy could be one to benefit if tales of their immigration site breaking overnight due to weight of demand are anything to go by.
Manufacturing shown to be slowing
Back in the land of sense and economic data, yesterday’s run of global manufacturing data was altogether rather disappointing. In Europe growth was sustained albeit with near stagnation seen in France and Germany whilst the UK posted a really grim report.
UK manufacturing was shown to have slipped to its slowest level of growth since April 2013. To be honest we have always felt that Q2 would be a tough month for manufacturers. Thanks to a lower pound they are having to deal with higher input prices, export markets such as the Eurozone and BRIC countries are not giving them dependable demand, and the National Living Wage coming through in May are all seen to be pressures.
A glimmer of hope is that the survey took place between the 12th and 24th of February and sterling only really started to come lower on the 22nd following Boris Johnson’s decision to campaign for a Brexit from the EU. Of course, the translation is not instantaneous with some academics saying that it takes a full 12 months to be felt – hedging beneficial levels are a way of elongating this benefit for exporters.
The US’s ISM number bounced back well from a poor initial figure a week ago.
Aussie higher for now
Commodity currencies have been given the opportunity to stretch their legs slightly overnight following strong Australian GDP and uplifts in individual currencies. Australian GDP rose by 0.6% on the quarter and 3% on the year and will happily keep the Reserve Bank of Australia from fiddling with rates in the short term. Caveats remain and we need to some form of positivity from the Chinese economy before we can have more confidence in the Australian and commodity growth story.
Euro on the back foot so far in March
Euro spent a lot of yesterday on the back foot following comments from European Central Bank President Mario Draghi that “work is being carried out to ensure that all the technical conditions are in place to make the full range of policy options available for implementation, if needed”. To reiterate our thoughts from yesterday market expectations of what policymakers will eventually do are focused around another interest rate cut to take deposit rates further into negative territory and an additional 10-15bn euros of asset purchases on a monthly basis. A rabbit needs to be pulled from a hat however if you want EURUSD down to parity and a Brexit battled GBPEUR above 1.35.
We will find out on March 10th
Have a great day.