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Will Draghi Catch the Markets and the EUR by Surprise?

Bob Mason
Following some solid trade figures out of China this morning and a better than expect GDP number out of Japan, there may be more fuel in Trump’s belly to roll out punitive trade tariffs that will likely lead central banks to hit the pause button

Earlier in the Day:

Key stats released through the Asian session this morning included Japan’s finalized 4th quarter GDP numbers, together with trade figures out of Australia and China.

Out of Japan, the 4th quarter GDP numbers were revised upwards, with the economy growing by 1.6% year-on-year, revised up from a 1st estimate 0.5%, with the economy up 0.4% quarter-on-quarter, upwardly revised from a 1st estimate 0.1%.

The upward revision came off the back of a continued recovery in trade that supported business investments and an increase in inventories.

Concerns over 1st quarter growth prospects dimmed the mood however, with January’s industrial production figures having disappointed. The economy’s dependence upon trade continues to be the Achilles heel, with wage growth lagging and ultimately weighing on household spending, the missing piece of the jigsaw for the Japanese economy.

For the Aussie Dollar, confidence in the economy was restored, with the trade balance rising from a revised A$1.146bn deficit to an A$1.055bn surplus in January, which was better than a forecasted A$0.2bn surplus.

Exports of goods and services increased by 4% to A$33.924bn, while imports fell by 2% to A$32.869bn in January.

The turnaround was attributed to the mining sector and non-rural goods:

Gold exports surged by 54%, equivalent to A$770m, while the import of non-monetary gold fell by 19%, equivalent to $95m.

Transport equipment exports jumped by 75%, equivalent to A$208m, with the export of ‘Other mineral fuels’ rising by 9%, equivalent to A$287m.

On the import side, a 7% slide in the import of consumption goods, equivalent to A$586m, did the damage, with the import of textiles, clothing and footwear falling by 14% (A$232m).

The Aussie Dollar moved from $0.78258 to $0.78314 upon release of the figures by the ABS, before easing back to $0.7830 at the time of writing, a 0.06% rise for the day.

While the Australian trade figures may have impressed, trade data out of China was even more impressive, with exports surging by 44.5% in February, driving China’s trade surplus to $33.74bn from January’s $20.35bn.

The numbers were impressive in isolation, while softer when combined with January figures, with exports up 24.4%, which was better than the end of 2017 export figures. Imports rose by a combined 21.7% in January and February, with softer February figures being offset by a more sizeable increase in the import of raw materials in January that contributed to the jump in exports last month

The positive numbers provided further support for the Aussie Dollar, with hopes of easing tension between North and South Korea supporting risk appetite through the session, adding further pressure on the U.S Dollar.

Elsewhere, the Japanese Yen was up 0.03% to ¥106.04 against the U.S Dollar, with the Kiwi Dollar up 0.05% to $0.7287, supported by the better than expected trade figures out of China.

In the equity markets, it was a better session, with the majors in positive territory, led by the Hang Seng, which was up 1.44% at the time of writing.

The Day Ahead:

For the EUR, Economic data out of the Eurozone is on the lighter side this morning, limited to Germany’s factory order numbers for January. Forecasts are for orders to fall from December’s surge, which will be EUR negative, though we will expect the stats to have a relatively muted impact ahead of this afternoon’s ECB monetary policy decision and the all-important press conference.

The outcome of the Italian General Election and rising fear of a trade war, together with Draghi’s view that inflation is likely to soften are expected to pin back any hawkish commentary through the press conference.

At the time of writing, the EUR was down 0.04% to $1.2407, with today’s ECB press conference the key driver.

For the Pound, there are no material stats scheduled for release this morning, which will leave the Pound in the hands of Brexit chatter through the day, the big question being whether the EU will look favourably upon Theresa May’s wish list. Perhaps the threat of a U.S driven trade war and the Italian General Election result will work in Britain’s favour, with the EU needing all the friends it can get.

At the time of writing, the Pound was up 0.05% to $1.3903, as it continues to tip toe towards $1.40.

Across the Pond, economic data is on the lighter side this afternoon, with stats limited to the weekly jobless claims figures. Following the better than expected ADP nonfarm employment change figures on Wednesday, we won’t expect the weekly figures to have too much impact ahead of tomorrow’s nonfarm payroll and wage growth numbers.

Focus through the day will likely be on Capitol Hill and Trump’s plans for trade, with the markets expecting an announcement that could reignite market volatility and weigh on the Dollar.

At the time of writing, the U.S Dollar Spot Index was down 0.06% to 89.586, with appetite for the Dollar having eased through the early part of the day on hopes of productive talks between North and South Korea.

Across the border, stats out of Canada this afternoon are limited to housing sector data, which are unlikely to have a material impact on the Loonie as the markets focus on the implications on trade with the U.S should trade tariffs be introduced.

At the time of writing, the Loonie was up 0.20% to C$1.2886 against the U.S Dollar, with some choppy days ahead.

This article was originally posted on FX Empire