USD: Off to a rough start
The dollar is starting the week on the back foot after an unexpected drop in the New York Fed’s Empire State manufacturing index. The index surveys 200 manufacturers in New York and contracted for first time in 7 months as factory activity slowed. Analysts were expecting a positive print of +7.5, making the miss of -1.0 that much harder to digest, but the six-month outlook was nearly unchanged, leaving some room for positivity in the longer outlook.
Tuesday we will be watching industrial production figures for April to a third month of gains after March’s reading showed the largest utilities gain on record. Towards the end of the week we look to our two Fed speakers – Mester on Thursday and Bullard on Friday.
EUR: Investors bet on the euro
Things are looking up for the euro, if futures pricing is any indicator. Speculators in the futures market are now net long on their euro bets for first time since May 2014.
The forecast for European politics is looking sunny. Emmanuel Macron was sworn in as the president of France and he has named Edouard Philippe as Prime Minister. Notably, Macron’s first official state meeting will be with German Chancellor Angela Merkel, a further testament to Macron’s commitment to the European Union and the single currency.
Angela Merkel’s party took home a big win this weekend with a surprisingly strong victory in a state that usually swings to a rival political party. The Christian Democrats victory in their rival’s heartland is being hailed as a barometer for the general election which will take place this September. Victory for Angela Merkel and her conservative party will most likely play well for the euro.
GBP: Polls support May’s majority
Snap elections are firmly in our sights this week, with sterling moving higher Monday morning after news that Theresa May’s party is leading in the polls. With a larger majority, the Prime Minister will have an easier time pushing Brexit legislation through plus a unified front in negotiating the break with Europe. While this doesn’t necessarily mean that the UK will have a stronger position in the eyes of the EU, calming any infighting on the domestic front would deteriorate risk appetite. Further confirmation that May is gathering a stronger majority in Parliament will be positive for the pound.
AUD: Up with oil
The Aussie dollar was lifted Monday morning along with most commodities. Oil prices are taking the lead in that space after Saudi Arabia and Russia both announced that they would extend production cuts to help stabilize the oil market.
The RBA minutes will be released Tuesday and will be scoured for any changes in language or tone after they took a more dovish tone in their last meeting. Consumer confidence on Wednesday and employment data Thursday will keep us busy as well.
CAD: Whatever it takes
Oil prices are firmer after Saudi Arabia and Russia both announced that they would extend production cuts into March 2018. The two biggest oil exporters have “agreed to do whatever it takes to achieve the desired goal of stabilizing the market,” boosting not only the price of crude oil, but other commodities and the currencies linked to them including CAD. Oil prices may overshadow and domestic data, but inflation on Friday will be on our radar.
JPY: Risks build on the horizon, but a contained yen so far
On the domestic front, we have manufacturing data and industrial production overnight on Tuesday, with growth figures overnight Thursday. North Korea is propelling towards the capability to launch intercontinental ballistic missiles which will likely weigh on risk appetite, although we are not seeing much of this come through in Japanese yen trades so far.