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Why Stocks Won't Crash (For Now)
A number of prominent commentators suggest a market crash may be imminent. We think their arguments are flawed and the odds favour a temporary correction.
The dollar edged higher against a basket of major currencies on Friday as a global selloff sent equities markets lower, but gains looked likely to be temporary amid expectations that U.S. interest rates are likely to remain on hold for some time.
USD/JPY ended Friday’s session at 101.61, after weakening to 101.31 earlier in the trading day, the lowest since March 19. For the week, the pair lost 1.41%.
Demand for the yen continued to be underpinned after the Bank of Japan indicated earlier in the week that it was unlikely to implement further stimulus measures in the short term.
The dollar was almost unchanged against the euro at the close of trade, with EUR/USD trading at 1.3884, after touching session highs of 1.3905 earlier. The pair ended the week 1.04% higher, the largest weekly gain since September.
The greenback briefly found support after data on Friday showed that U.S. producer prices rose 0.5% in March, the largest increase in nine months and ahead of expectations for a 0.1% increase.
However, the dollar remained under pressure after the minutes of the Federal Reserve’s March meeting indicated that an interest rate increase is unlikely to be warranted for some time.
The Fed’s March meeting minutes, released on Wednesday, showed that policymakers discussed whether to keep interest rates at record lows until inflation moves higher, and did not elaborate on a possible timeframe for when rates could start to rise.
Last month the U.S. central bank reduced the monthly pace of asset purchases by $10 billion, to $55 billion, and repeated it is likely to continue paring the program in “further measured steps.”
The dollar gained ground against the pound on Friday, with GBP/USD falling 0.32% to 1.6729 at the close. The drop in sterling came after data showed that U.K. construction output fell in February as heavy rain, which led to flooding in parts of the country, delayed work.
The dollar was also higher against the commodity linked Australian and Canadian dollars. AUD/USD slipped 0.18% to 0.9398 on Friday, paring back the week’s gains to 1.42%, while USD/CAD advanced 0.41% to 1.0978.
In the week ahead, market watchers will be focusing on speeches by Fed Chair Janet Yellen, as well as reports on U.S. retail sales and housing starts. Data on first quarter Chinese economic growth and a rate decision by the Bank of Canada will also be closely watched.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 14
- The euro zone is to release data on industrial production.
- The
U.S. is to produce data on retail sales, the government measure of
consumer spending, which accounts for the majority of overall economic
activity.
Tuesday, April 15- The Reserve Bank of Australia is to publish the minutes
of its latest policy meeting, which contain valuable insights into
economic conditions from the bank’s perspective.
- Switzerland is to release data on producer price inflation.
- The U.K. is to release data on consumer price inflation, which accounts for the majority of overall inflation.
- The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
- Canada
is to publish data on manufacturing sales. At the same time, the U.S.
is to produce data on consumer inflation. Later Tuesday, Fed Chair Janet
Yellen is to speak; her comments will be closely watched.
Wednesday, April 16- New Zealand is to release a report on consumer inflation.
- China
is to publish data on first quarter gross domestic product, the
broadest indicator of economic activity and the leading indicator of
economic growth. The nation is also to release data on industrial
production.
- Bank of Japan Governor Haruhiko Kuroda is to speak at an event in Tokyo; his comments will be closely watched.
- The
U.K. is to release official data on the change in the number of people
unemployed and the unemployment rate, as well as data on average
earnings and public sector borrowing.
- The ZEW Institute is to publish a report on economic expectations in Switzerland, a leading indicator of economic health.
- The euro zone is to release revised data on inflation.
- The U.S. is to produce reports on housing starts, building permits and industrial production.
- The
Bank of Canada is to announce its benchmark interest rate and publish
its monetary policy statement, which outlines economic conditions and
the factors affecting the bank’s decision. The announcement is to be
followed by a press conference.
- Later Wednesday, Fed Chair Janet Yellen is to speak at an event in New York.
Thursday, April 17- Australia is to release private sector data on business confidence, as well as official data on new vehicle sales.
- The euro zone is to publish data on the current account, while Germany is to produce data on producer price inflation.
- Canada is to publish data on consumer inflation.
- The U.S. is to publish data on initial jobless claims and a report on manufacturing activity in the Philadelphia region.
Friday, April 18The yen ended the week broadly higher against the dollar after the Bank of Japan refrained from implementing fresh stimulus measures at its latest policy meeting, while dovish Federal Reserve minutes weighed on the dollar.
USD/JPY ended Friday’s session at 101.61, after weakening to 101.31 earlier in the trading day, the lowest since March 19. For the week, the pair lost 1.41%.
The pair is likely to find support at 101.20 and resistance at 102.12, Thursday’s high.
The greenback briefly found support after data on Friday showed that U.S. producer prices rose 0.5% in March, the largest increase in nine months and ahead of expectations for a 0.1% increase.
Demand for the yen continued to be underpinned after Bank of Japan Governor Haruhiko Kuroda said Tuesday the economy can weather a sales tax increase without further monetary policy measures to offset it.
Earlier Tuesday, the BoJ voted to keep its policy target of increasing the monetary base unchanged at an annual pace of 60 trillion to 70 trillion at the end of its two-day policy meeting.
Kuroda said economic growth and inflation were likely to continue to pick up in the coming months despite a sales tax increase in April.
The dollar came under heavy session pressure after the minutes of the Federal Reserve’s March meeting indicated that an interest rate increase is unlikely to be warranted for some time.
The Fed’s March meeting minutes, released on Wednesday, showed that policymakers discussed whether to keep interest rates at record lows until inflation moves higher, and did not elaborate on a possible timeframe for when rates could start to rise.
Last month the U.S. central bank reduced the monthly pace of asset purchases by $10 billion, to $55 billion, and repeated it is likely to continue paring the program in “further measured steps.”
Fed Chair Janet Yellen had indicated that the bank could begin to raise interest rates about six months after its bond-buying program winds up, which is expected to happen this fall.
In the week ahead, market watchers will be focusing on speeches by Fed Chair Janet Yellen and BoJ Governor Haruhiko Kuroda, as well as reports on U.S. retail sales and housing starts.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 14
- The U.S. is to produce data on retail sales, the
government measure of consumer spending, which accounts for the majority
of overall economic activity.
Tuesday, April 15- Fed Chair Janet Yellen is to speak; her comments will be closely watched.
Wednesday, April 16- BoJ Governor Haruhiko Kuroda is to speak at an event in Tokyo; his comments will be closely watched.
- The U.S. is to produce reports on housing starts, building permits and industrial production.
- Later Wednesday, Fed Chair Janet Yellen is to speak at an event in New York.
Thursday, April 17- The U.S. is to publish data on initial jobless claims and a report on manufacturing activity in the Philadelphia region.
Friday, April 18The dollar ended the week close to three-week lows against the euro on Friday as dovish Federal Reserve minutes tempered expectations that U.S. interest rates would rise sooner than had been anticipated.
EUR/USD ended Friday’s session at 1.3884, after touching session highs of 1.3905 earlier. The pair ended the week with gains of 1.04%, the largest weekly increase since September.
The pair is likely to find support at 1.3835, Thursday’s low and resistance at 1.3900.
The euro eased back from session highs against the dollar on Friday after data showed that U.S. producer prices rose 0.5% in March, the largest increase in nine months and ahead of expectations for a 0.1% increase.
A separate report showed that the University of Michigan’s U.S. consumer sentiment index rose to 82.6 this month, its highest level since July.
But the greenback remained under pressure after the minutes of the Fed’s March meeting indicated that an interest rate increase is unlikely to be warranted for some time.
The Fed’s March meeting minutes, released on Wednesday, showed that policymakers discussed whether to keep interest rates at record lows until inflation moves higher, and did not elaborate on a possible timeframe for when rates could start to rise.
Last month the U.S. central bank reduced the monthly pace of asset purchases by $10 billion, to $55 billion, and repeated it is likely to continue paring the program in “further measured steps.”
In mid-March Fed Chair Janet Yellen had indicated that interest rates could start to rise around six months after the end of the Fed’s bond purchasing program, suggesting a rate hike could occur in the early part of 2015.
The single currency continued to remain supported after comments by European Central Bank officials earlier in the week tempered expectations for quantitative easing.
ECB governing council member Yves Mersch said Monday there is no immediate risk of deflation in the euro zone and therefore no urgent need to implement large-scale bond purchases.
Separately, Bundesbank president Jens Weidmann said that monetary policy cannot solve the financial crisis, and urged euro zone political leaders to keep reforming their economies.
In the week ahead, market watchers will be focusing on speeches by Fed Chair Janet Yellen, as well as reports on U.S. retail sales and housing starts. Meanwhile, Germany is to release its ZEW economic sentiment index.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 14
- The euro zone is to release data on industrial production.
- The
U.S. is to produce data on retail sales, the government measure of
consumer spending, which accounts for the majority of overall economic
activity.
Tuesday, April 15- The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
- Later Tuesday, Fed Chair Janet Yellen is to speak.
Wednesday, April 16- The euro zone is to release revised data on consumer price inflation.
- The U.S. is to produce reports on housing starts, building permits and industrial production.
- Later Wednesday, Fed Chair Janet Yellen is to speak at an event in New York.
Thursday, April 17- The euro zone is to publish data on the current account, while Germany is to produce data on producer price inflation.
- The U.S. is to publish data on initial jobless claims and a report on manufacturing activity in the Philadelphia region.
Friday, April 18EUR/USD trading forecast for Monday
During Friday’s trading session EUR/USD traded within the range of 1.3863-1.3905 and closed at 1.3885.
Fundamental viewIndustrial production in the euro zone probably rose 0.2% in February from the previous month, according to the median analyst’ estimate. In January, industrial output unexpectedly declined 0.1%. Industrial production is an indicator of the business cycle that shows the activity and development in the industry as a whole, by measuring the change in volume for a certain period of time. Information on industrial production is raised through special studies for EU members, which are called Prodcom. They cover between 5000 and 6000 products. The index measures the percentage change from the previous month.
A larger than expected increase in the industrial output would heighten the appeal of the euro. The official report is due out at 09:00 GMT on Monday.
Meanwhile, retail sales in the United States probably increased 0.8% in March on a monthly basis, according to the median forecast by experts. In February sales rose 0.3%. The report on retail sales reflects the dollar value of merchandise sold within the retail trade by taking a sampling of companies, operating in the sector of selling physical end products to consumers. The retail sales report encompasses both fixed point-of-sale businesses and non-store retailers, such as mail catalogs and vending machines. US Census Bureau, which is a part of the Department of Commerce surveys about 5 000 companies of all sizes, from huge retailers such as Wal-Mart to independent small family firms.
US core retail sales (retail sales ex autos) probably rose 0.5% in March compared to a month ago, following a 0.3% increase in February. This indicator removes large ticket prices and historical seasonality of automobile sales.
The retail sales index is considered as a coincident indicator, thus, it reflects the current state of the economy. It is also considered a pre-inflationary indicator, which investors can use in order to reassess the probability of an interest rate hike or cut by the Federal Reserve Bank. In addition, this indicator provides key information regarding consumer spending trends. Consumer expenditures, on the other hand, account for almost two-thirds of nation’s total Gross Domestic Product. Therefore, a larger than expected increase in sales would heighten the appeal of US dollar. The official report is due out at 12:30 GMT on Monday.
AUD/USD forecast for Monday
During Friday’s trading session AUD/USD traded within the range of 0.9364-0.9426 and closed at 0.9398.
Fundamental viewRetail sales in the United States probably increased 0.8% in March on a monthly basis, according to the median forecast by experts. In February sales rose 0.3%. The report on retail sales reflects the dollar value of merchandise sold within the retail trade by taking a sampling of companies, operating in the sector of selling physical end products to consumers. The retail sales report encompasses both fixed point-of-sale businesses and non-store retailers, such as mail catalogs and vending machines. US Census Bureau, which is a part of the Department of Commerce surveys about 5 000 companies of all sizes, from huge retailers such as Wal-Mart to independent small family firms.
US core retail sales (retail sales ex autos) probably rose 0.5% in March compared to a month ago, following a 0.3% increase in February. This indicator removes large ticket prices and historical seasonality of automobile sales.
The retail sales index is considered as a coincident indicator, thus, it reflects the current state of the economy. It is also considered a pre-inflationary indicator, which investors can use in order to reassess the probability of an interest rate hike or cut by the Federal Reserve Bank. In addition, this indicator provides key information regarding consumer spending trends. Consumer expenditures, on the other hand, account for almost two-thirds of nation’s total Gross Domestic Product. Therefore, a larger than expected increase in sales would heighten the appeal of US dollar. The official report is due out at 12:30 GMT on Monday.
Australian Dollar Gains against the Dollar on Positive Economic Sentiment
The Australian dollar was trading higher on Monday morning, fuelled by growing optimism about the prospect of the local economy and the probability that the euro zone will inject more stimulus to boost the economy.
As of 7.00 AEST on Monday, the currency was trading at 93.90 U.S. cents, compared to 93.75 cents on April 11. This followed European Central Bank President Mario Draghi’s comments that he will move in to intervene if the euro strengthens any further, reported the Sydney Morning Herald.
The probability that the euro zone interest rate may be lowered or an economic stimulus injected is the core focus of forex markets, said OM Financial senior client advisor Stuart Ive.
"He's indicated that the ECB is ready to act and the euro has opened 50 points lower (against the US dollar) and the Aussie is considerably higher against the euro," Mr Ive said from Wellington.
The Aussie was trading at 67.83 cents per euro, compared with Friday’s close of 67.47. The Australian dollar surged past 94.50 U.S. cents after reports indicated that the country’s unemployment rate in March plunged 0.3 percentage points to stand at 5.8 percent.
Ive added that the positive local economic prospects will prop up the Australian dollar, which fell slightly on April 11.
"Since the start of this year, the economic data for Australia has been slowly getting better," he said.
"The employment data last week certainly surprised the markets, so that's two good numbers on the trot. It's always good news when that happens.
"It shows there is a bit of strength coming through on the Australian economy and that will always underpin the Australian dollar."
AUD/USD almost unchanged in light trade
The Australian dollar was almost unchanged against its U.S. counterpart in light trade on Monday, as demand for the greenback remained under pressure amid expectations that the Federal Reserve will not rise interest rates for some time.
AUD/USD hit 0.9376 during late Asian trade, the session low; the pair subsequently consolidated at 0.9391, easing 0.07%.
The pair was likely to find support at 0.9336, the low of April 9 and resistance at 0.9461, the high of April 10 and a four-and-a-half month high.
The greenback briefly strengthened after data on Friday showed that U.S. producer prices rose 0.5% in March, the largest increase in nine months and ahead of expectations for a 0.1% increase.
But the U.S. dollar remained under pressure after the minutes of the Federal Reserve's March meeting indicated that an interest rate increase is unlikely to be warranted for some time.
The Fed's March meeting minutes, released on Wednesday, showed that policymakers discussed whether to keep interest rates at record lows until inflation moves higher, and did not elaborate on a possible timeframe for when rates could start to rise.
The Aussie was higher against the euro, with EUR/AUD shedding 0.26% to 1.4737.
Later in the day, the U.S. was to produce data on retail sales.
2014-04-14 12:30 GMT (or 14:30 MQ MT5 time) | [USD - Retail Sales]
if actual > forecast = good for currency (for USD in our case)
==========
U.S. Retail Sales Jump 1.1% In March Amid Improved Weather
With Americans heading back to the stores after the unusually rough winter, the Commerce Department released a report on Monday showing that U.S. retail sales rose by more than expected in the month of March.
The report showed that retail sales jumped by 1.1 percent in March after climbing by an upwardly revised 0.7 percent in February.
Economists had expected sales to increase by about 0.9 percent compared to the 0.3 percent increase originally reported for the previous month.
Peter Boockvar, managing director at the Lindsey Group, said, "Retail sales in March showed a nice bounce back after the weather influenced previous months."
The stronger than expected retail sales growth was partly due to a notable increase in sales by motor vehicle and parts dealers, which surged up by 3.1 percent in March after climbing by 2.5 percent in February.
Excluding the increase in auto sales, retail sales still rose by 0.7 percent in March compared to economist estimates for an increase of 0.5 percent.
The report also showed a significant rebound in sales by building materials and supplies dealers, which rose by 1.8 percent in March after falling by 0.6 percent in February.
General merchandise stores and non-store retailers also saw strong sales growth, with sales rising by 1.9 percent and 1.7 percent, respectively.
On the other hand, the report said sales at electronic and appliance stores dropped by 1.6 percent. Sales at gas stations also fell by 1.3 percent.
Core retail sales, which exclude autos, gasoline, and building materials, increased by 0.8 percent in March compared to economist estimates for 0.5 percent growth.
"Bottom line, consumers clearly responded to the winter thaw and the sales gains m/o/m were pretty broad based," Boockvar said.
"With the upside to the core portion of the data, Q1 GDP estimates should go up by about .1-.2 but still may print below 2%," he added. "The sustainability of the sales gains, as opposed to just a onetime weather rebound, will now be the focus."
USD/CAD rebounds off key support (based on dailyfx article)