Market Drivers Mar. 29, 2016

Comm dolls slightly lower on oil
Williams – US economy almost at full employment
Nikkei -0.18% Dax 0.63%
Oil $38/bbl
Gold $1219/oz.

Europe and Asia:
EUR Private Loans 1.6% vs. 1.4%

North America:
USD Consumer Confidence 10:00
USD Chair Yellen Speech 12:30

It’s been another extremely quiet night of trade in the currency market as all centers finally opened up for business after the Easter holiday break. With little economic data on the docket the major simply marked time as traders awaited a speech by Fed Chair Janet Yellen later in the global day.

Trading was characterized by very narrow ranges in Asian and early European dealing with commodity dollars slightly weaker as oil continued to drift lower dropping into the $38/bbl level. But overall the action was very lackluster with little to move FX either way.

In Japan the upper chamber of the Parliament passed PM Abe’s budget of 96 Trillion yen, but the issue of the sales tax hike was shelved for the moment. Although Mr. Abe has remained steadfast in his assurance that a sales tax hike will take place, there is now some speculation that the government may delay the move in order to provide more stimulus for Japanese economy.

There is no doubt that any hike in sales taxes will dampen what is already very weak consumer demand. The latest reading of Retail Sales in Japan showed a decline -2.3% on a month over month basis, although sales are up about 0.5% on a year over year comparison. The lack of any meaningful wage gains in Japan (latest labor negotiations with auto workers only yielded a 30 yen hike for the spring) are weighing on demand and any hike in sales taxes will likely exacerbate those problems.

Mr. Abe is not expected to make a final decision on the issue until Japan hosts the G-20 meeting in May but any delay will be viewed as sign of weakness by the market and could cause some turbulence in Japanese fixed income space which has already seen volatility explode since the introduction of negative rates.

In North America today the marquee event will the speech by Chair Yellen to the Economic Club of New York as she discusses Economic Outlook and Monetary Policy. It will be interesting to see if Ms. Yellen veers off her dovish script given the fact that many of the other Fed officials including Williams today continued to suggest that they want to normalize rates sooner rather than later. It’s very unlikely that Ms. Yellen will offer any concrete hints to future Fed moves, but if she does not rule out the possibility of a rate hike at the next meeting in April, that alone could prop USD/JPY and send the pair above the 114.00 barrier as the day proceeds.

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