ETP Weekly: Markets turn focus on us jobs data this week

The Federal Reserve Open Market Committee sent a mixed message, acknowledging the softness in prices while pointing to strength in economic expansion and jobs. US Dollar appreciated,…..

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focusing on the implications of economic strengthening on the likelihood of a rate rise. The optimism in economic activity may sit at odds with the slightly disappointing GDP figures released later last week and this week’s jobs numbers could drive a reversal in Dollar strength if they prove to be disappointing.

Carbon rallies on hopes of reform to emissions trading scheme. Carbon rose 4.1% after proposals to amend the EU carbon trading scheme were rejected by the European parliament. The failure of the reforms creates an opportunity for the implementation of more ambitious changes which would take affect sooner relieving the current glut of carbon credits. In the agricultural space the price of soybean oil plunged 7.6% as US regulators approved a request for Argentinian biofuel makers to export to the US market. This created fears that the US market would be awash with
supply from its South American counterparts. During the week, exchange traded sugar prices fell 6.7% following signals that Indian authorities would launch a production subsidy for raw sugar. The subsidy would make it economically viable for sugar mills in India to begin exporting onto global markets before international competitors like Brazil and Thailand begin to do so later in the year.  

European stocks advance following the launch of QE. European stocks ended the week higher after experiencing higher volatility. European stock markets remain buoyed by the ECB announcement of QE but face uncertainty over developments in Greece and the approach of the newly elected left-wing Syriza government to international debt negotiations. The result was that the EURO STOXX 50® Investable Volatility Index increased by 3.3% during the week. Elsewhere, the Federal Open Market Committee (FOMC) signaled, after its first meeting, that it is still
on track to raise short term interest rates this year recognizing the solid pace of economic growth in the US. The prospect of higher US rates caused the gold price to drop 2.1% and in turn the DAXglobal® Gold Miners Index to fall 4%.  
US jobs in focus for USD after GDP disappoints. With the US Dollar continuing its surge higher against most major currencies last week, the risk of a correction increases, especially if the underlying economic data disappoints. The Fed broadly maintained its guidance about monetary policy, but if the weakening global situation begins to have a bigger impact on the domestic US economy, that could all change quickly. To that end, the key releases for the USD this week are ISM manufacturing index and the jobs data on Friday and if they disappoint as the Q4 GDP data did then there is likely to be a negative reaction from the USD. Markets will likely push back expectations for a rate hike, which is priced in for September currently. Both the Reserve Bank of Australia and Bank of England rate decisions are likely to take somewhat of a back seat to US economic releases, with the BOE expected to keep policy unchanged. Meanwhile the risk for the AUD is a rate cut as the economic recovery remains sluggish. Currently markets are indicating a 65% chance of a cut.


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