The Fed induced dollar rally could see a major move Friday morning if we see a strong nonfarm payroll report. The euro zone remains the weakest link in the advanced economies list, albeit they have shown some glimpses of optimism recently, and we could see the euro-dollar deliver strongest currency reaction with tomorrow’s NFP report. Current expectations are for 190,000 jobs created in April, but most of the top forecasters are looking for a print closer 210,000. A print in the mid-200,000 could see EUR/USD target the 1.1050 region.
ECB – Weidmann shows confidence in Germany
Stocks – Extended FOMC weakness and caution on trade
Oil – Softer on rising US stockpiles and higher production from OPEC
Gold – Sinks on Fed’s Patience on rate cuts
Bundesbank President Weidmann, the front-runner for many to replace to ECB Chief Draghi when his term ends in October, delivered very optimistic comments out of Germany. He noted the slowdown with German growth should be temporary and that consumption is overcoming weakness. Weidmann, a hawk, also reiterated that the ECB should not delay policy normalization if inflation allows it. He remains concerned if the extraordinarily expansionary monetary-policy stance remains for too long, risks and side effects will grow.
The other top contender for Draghi’s spot is Finnish central bank governor Rehn, who cautioned on any overreaction to this week’s improved euro zone data. The euro would likely see weakness on his appointment to the head chair of the ECB, while strength could be expected if we saw Weidmann get the nod.
The S&P 500 index continued to retreat from record highs following the aftermath of the Fed Chair Powell’s comments that lowered rate cut bets. Stocks did see some weakness also attributed to reports that trade talks may have hit an impasse. The complete article from Global Times however was not as negative as the headline that many focused on. Both sides remain committed to talks and the next round of talks will take place in Washington next week.
The deliverance of tighter sanctions on Iran will likely translate to higher production from Saudi Arabia and Russia. The US is doing there part in continue the string of record production, as crude inventories rose to the highest level in two years. Russia also failed to deliver on their production cut pledge, despite many assurances from Russian Energy Minister Novak. A cut of 228,000 barrels a day was expected but they only delivered a cut of 185,000 in April. Expectations are dwindling that OPEC + will be able to deliver on any extension on production cuts. Even if they do show optimism at the next JMMC meeting on May 17th, many will not expect an extended cut agreement to have the same effect as the first one. Right now the path of least resistance for oil remains to the downside.
Gold remains stuck near the lows of the year as investors pared bets of a rate cut to be delivered by the Fed in 2019. The yellow metal has had a tough time as stocks surge to record highs and most of the headwinds from last year appear to be turning to tailwinds. Trade deal optimism remains strong, China is no longer deleveraging and the Fed has kissed rate hikes goodbye.
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