Well, it’s quiet out there as an exceptionally eventful week (finally) winds down.
As we head into the weekend, oil is trying to eek out a gain on the week, after a surprise inventory draw (reported first by API on Tuesday and then confirmed a day later by the weekly EIA print) shored up a market that was for all intents and purposes in free fall.
Th Saudis have hinted they may extend output cuts past June if global crude inventories remain “excessive,” an amusing proclamation from the kingdom’s energy minister considering it was just a few days ago that we learned Riyadh had erased 1/3 of January’s cuts last month.
“The recovery at this stage remains fragile,” Ole Hansen, head of commodity strategy at Saxo Bank said Friday in what is a good candidate for “understatement of the week.” “The market managed to find support at key levels following a small drop in U.S. crude inventories,” he added. Watch for Baker Hughes later today.
Meanwhile, the euro hit a five-week high and is headed for its biggest weekly gain in two months.
The common currency has had plenty of reasons to rally this week, between a dovish leaning Fed and Geert Wilders’ poor (relative to lofty expectations and speculation) performance in the Dutch elections and comments from the ECB’s Ewald Nowotny, who reiterated the idea that the Governing Council may hike rates before the end of QE. EURUSD rose to $1.0782 “where it met profit-taking interest,” Europe-based traders told Bloomberg, who adds that overnight volatility in EUR/USD on the second round of the French elections has dropped below 35%, compared to 50% last week.
For its part, the dollar looks set for weekly losses against all its major peers, as the dovish lean on the Fed hike pushed yields sharply lower, undercutting the rate differential thesis supporting a structurally strong greenback.
“The dollar has fallen because markets were expecting the Fed statement to be more hawkish, in particular showing a higher dot plot projection,” Imre Speizer, a markets strategist at Westpac Banking said. “Markets were disappointed and pared long positions. The unwinding of dollar longs could continue next week.”
It’s been nothing short of a barnburner for EM this week as markets are ebullient on the heels of the Fed’s dovish slant. “A weaker dollar is supportive of those emerging markets generally [although] I’m not sure whether its going to be long-lived,” James Woods, not the actor, but rather a Sydney-based investment analyst at Rivkin Securities told Bloomberg. “People are going to get back to focusing on the next Fed hike, and also Trump’s policies which would be dollar supportive.”
Right. But for right now, sh*t’s looking pretty goddamn good:
On Friday President Trump meets Angela Merkel, which should provide plenty of comic relief. You’ve gotta know the Iron Chancellor isn’t looking forward to this trip. It’s basically Western Democracy’s last line of defense against bullsh*t populist demagoguery meeting Steve Bannon’s useful idiot. They’ll be a joint presser at 1:20, so make sure and tune in for that spectacle.
Also, Steve Mnuchin will be hanging out at his first G-20 finance chiefs gathering in Germany. Let’s see if he tries any FX jawboning.
Here’s the econ docket for today:
- March 17-March 20: Labor Market Conditions Index Change, est. 2.5, prior 1.3
- 9:15am: Industrial Production MoM, est. 0.2%, prior -0.3%
- 9:15am: Capacity Utilization, est. 75.5%, prior 75.3%
- 9:15am: Manufacturing (SIC) Production, est. 0.5%, prior 0.2%
- 10am: U. of Mich. Sentiment, est. 97, prior 96.3
- 10am: U. of Mich. Current Conditions, est. 111, prior 111.5
- 10am: U. of Mich. Expectations, est. 87.1, prior 86.5
- 10am: U. of Mich. 1 Yr Inflation, prior 2.7%
- 10am: U. of Mich. 5-10 Yr Inflation, prior 2.5%
- 10am: Leading Index, est. 0.5%, prior 0.6%