Market Drivers April 11, 2018
Markets in holding pattern ahead of US CPI
UK data misses
Nikkei -0.49% Dax -0.33%
Europe and Asia:
GBP UK IP/MP -0.2% vs. 0.2%
GBP Trade Balance -10B vs. -11B
USD CPI 8:30
The FX markets were in a wary state of calm with very little price action in Asian and early European trade. There was a mild wave of risk aversion as traders prepared for a possible US air strike against Syria by the end of the week, but the sense of worry appeared to be contained as few market participants were anticipating a full-scale conflict.
Still, tensions in the region appear high, and things can certainly spin out of control if US action in some way touches Russian forces in the region. Relations between the two nuclear superpowers have reached a nadir recently with a set of US sanctions against Russian businesses that have sent Russian assets from stock to bonds to the ruble all tumbling by double-digit rates over the past few days.
To that end, US military authorities no doubt perceive the geopolitical dangers of any move in Syria and are likely to take all the precautions necessary. Still, the pall of military conflict hangs over the FX market and may be responsible for the tight trading conditions today.
On the economic front, the data calendar remained quiet with only second-tier reports on the docket today. In UK the Industrial and Manufacturing data both misses their mark with the later coming in at -0.2% vs. 0.2% eyed suggesting that activity is slowing down. The UK economy continues to send mixed signals, but unless the markets see material weakness in the services sector over the next month or so, the market is convinced that BoE will begin normalizing policy and will lift rates for the first time in years. Cable dropped on the miss of IP/MP data but quickly recovered recapturing the 1.4200 figure in morning London trade.
In US today the focus is on the CPI readings which are projected to print at 0.2% vs. 0.2% the period prior. However, given the uptick in PPI numbers yesterday there is a chance that inflation could perk up which would provide the Fed with even more ammunition to tighten rates in June. USD/JPY has been hugging the 107.00 level for the past 12 hours as the pair receded off the highs on risk aversion concerns, but if the data proves to be hotter than anticipated, the pair could make another run at the key 107.50 barrier as the recovery rally in USDJPY continues.