It's Not The USD's Week
IFC Markets | Apr 11, 2014 10:09AM ET
Decrease in the U.S. Dollar Index continued on Thursday. Thus, the current week may be the most unfortunate for it during the past nine months. As we have noted in previous reviews, the weakening of the U.S. currency began with the disappointment among investors with the labor market data for March which came out last Friday. The negative was added by the FOMC Minutes this week. However, we do not exclude an upward correction today. Yesterday's economic data from the U.S. has been quite positive, much better than the preliminary forecasts. The weekly number of unemployed people decreased to 300 thousand, the lowest since May 2007 before the crisis. The U.S. PPI will be released today, at 13-30 CET and the consumer confidence index from the University of Michigan is expected to come out at 14-55 CET. In our opinion, the prognosis is positive.
The U.S. stock indexes dropped significantly yesterday. And the day drop of Nasdaq (Nd100) by 3.1% was the maximum of two and a half year. Now investors take the incident as a technical correction. There was no strong negative. We believe that investors will wait for the corporate reports for the first quarter, an additional couple of weeks. If the whole reporting turns out positive and the aggregate earnings per share get increased, then the U.S. indices may continue to grow. In our opinion, the current P/E of Nasdaq 100 at 19.35 and the S&P 500 (SP500) at 17.91, look overrated.
Strengthening of the Euro yesterday (growth on the EUR/USD chart) was supported by the successful placement of Greek government bonds for the first time after the default two years ago. Last time, the Greek bonds were placed four years ago. The ECB President, Mario Draghi said on Thursday that his department is ready to start the QE (EUR emission) in order to avoid deflation. But right now this is not absolutely necessary. According to him, inflation in the EU should be increased to the target level of 2% by the end of 2016. Mario Draghi also said that the discount rate is likely to remain at its current level of 0.25% for a long time. We believe that the market considered the speech of the ECB Governor as negative for the Euro. This morning, the inflation data for March came out in Germany. It decreased from 1.24% in February to the lowest level since June 2010 and amounted to 1%. It supports the Euro growth this morning. Since the majority of market participants decided that the decrease is insignificant and it will not affect the consumer price index throughout the Eurozone, which will be released next week. Today, we do not expect any more significant economic data from Europe.
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The U.S. conducts negotiations with Japan over the reduction in import duties on rice, pork, beef (Fcattle), milk and sugar (Sugar). By the means of those duties, Japan protects its domestic market and thereby supports local farmers. The next round of the negotiations will be held on April 17. Then they continue on April 24th in the U.S. during the visit of the Prime Minister, Shinzo Abe. We believe that in the case of reduction of import duties in Japan, the world prices for these commodities may rise. The course of the negotiations may especially affect the frozen beef price volatility. Note that it has risen by 35% without any significant correction for the year and now at its historic high.
The Crude Oil prices slightly reduced. The OPEC lowered the demand forecast for its Oil in 2014 in the monthly review to 29.65 million barrels per day. This is 50 thousand barrels per day less than its previous global demand estimate.
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