Jittery dollarBy Arnaud Masset
The USD can’t seem to make up its mind what to do. On Tuesday it fell sharply after US President Donald Trump fired Secretary of State Rex Tillerson and replaced him with the Mike Pompeo, current head of the spy agency CIA. The greenback retreated against most of its peers with EUR/USD rising to 1.2413 and USD/CHF sliding to 0.9425. Asian equities lost ground with Japan’s Nikkei and Hong Kong’s Hang Seng falling 0.87% and 0.53%, respectively.
The tumble was surprising, because the economic consequences of the secretary swap are difficult to determine. This could explain why the US dollar bounced back Wednesday morning. Also this morning, European Central Bank President Mario Draghi sent the euro lower by saying the ECB would remain cautious not to kill the fragile but positive momentum in inflation, stating that “monetary policy will remain patient, persistent and prudent.” The euro currency fell to 1.2364 against the greenback, while EUR/CHF held steady around 1.17.
Despite intraday spikes in volatility, the FX market has been relatively calm since mid-January, suggesting that investors are waiting for the US Federal Reserve Bank to set the tone. Next week will see the new Fed Chair, Jerome Powell, debut a monetary-policy press conference and forecast update. Investors will watch keenly to see if Powell will take a different tack to his predecessor, Janet Yellen.
Chinese shoppers slow downBy Vincent-Frédéric Mivelaz
China’s February data for Retail Sales and Industrial Production increased 9.7% (previous: 10.2%) and 7.2% (previous: 6.6%). These clearly signal a slowdown in consumption, while industrial production continues rising, boosted by electric utilities (13.3%) and manufacturing (7%). Moreover, February’s Trade Balance (USD -5.70 billion) and Producer Price Index (3.7% against 4.3% in the previous month) confirm slowing economic growth, while inflation has hit 2.9%, its highest rate since 2013. Then there is the threat of a debt crisis: shadow banking, valued at USD 70 trillion, badly needs reform to avoid insolvencies.
Markets reacted mildly to the news. Hong Kong’s Hang Seng and Shanghai’s Composite deflated 1.7% and 0.9% since Monday.