What would Trump do?By Peter Rosenstreich
This is supremely difficult to answer. Anything can happen, and sometimes does. The Trump administration seems to be more focused on domestic scandals than anything else and is flying by the seat of its pants in most other matters. The President’s disruptive antics could cause an economic contraction, by accident. Nonetheless, the tax cut and the federal spending hike should keep the late-stage business cycle from slowing too quickly. Core inflation should continue to rise gradually, as labour supply tightens, so we still expect the Federal Reserve Bank to hike interest rates three times in 2018 and two in 2018.
Japan surplus fall hits yenBy Vincent-Frédéric Mivelaz
March export growth fell drastically to 2.10%, instead of an expected 5.20%. Imports also slid 0.60% (previously +16.60%) as shipments from China and Hong Kong slowed amidst the US-China confrontation. Declines were seen in electric components, food and manufactured goods. So a USD/JPY ascension started on 25 March is continuing, approaching hourly resistance at 107.90 (14 February high) and heading higher toward 107.40 in the short-term.
Yen appreciation since February 2018 remains a big hurdle for Japanese competitiveness (USD/JPY and EUR/JPY -4.73% and -1.89% year to date) and export potential. Exports are not expected to decrease further, as the currency impact is forecast to decline. Japan’s trade surplus continues to arouse the envy of its commercial partners. Now at a 10-year high of JPY 797.3 billion (USD 7.51 billion), it continues to expand. The surplus also benefitted from intensified trade with its Asian partners, equivalent to JPY 1’005 billion, a level not seen in eight years (5-year average: JPY 255 billion).
Risk aversion is overdoneBy Peter Rosenstreich
Concerns over Syria, protectionism and repricing of credit risk have pushed Asian forex lower, especially in the indebted economies. The sell-off provide opportunities to buy the tiger cubs – India, Indonesia and Philippines – with solid structural and cyclical upturns expected. The region’s growth engine is revving strongly. China’s GDP rose 6.8% annually in Q1 2018, beating the market expectations. China’s retail sales increased 10.1% month-on-month in February, up from 9.7% in January
UK data points to hikesBy Peter Rosenstreich
Expectations of a strong rise in the UK wages and higher Bank of England interest rates sent GBP/USD to its highest levels since 2016. UK average weekly earnings rose 2.8% yet nominal wages rose less than expected: the trajectory will keep expectations high. With the BoE’s playbook laid out, any risk to a stronger GBP will primarily stem from Brexit. GDP growth looks to be around 1.5% for 2018 and 2019, so we see the BoE hiking 0.25% both in May and again in November.