Review of April 27 – May 1: Fed rate hike in June under question

By | May 2, 2015

Equity markets last week experienced the frustration and the absolute majority of its finished “in the red”. Exceptions were only the Hong Kong HSI, which showed a symbolic increase of 0.9%.The leader of the fall was the German DAX 30 (FDAX), lost 3.71% on the week.Weakening, including, and was caused by the significant strengthening of the euro, which is a negative factor for the export-oriented German companies. US NASDAQ and Dow Jones fell 1.36% and 0.45%, respectively. And even the very weak US GDP for Q1, which gives reason to believe that in June by the US Federal Reserve should not wait for the start of monetary tightening, failed to maintain assets.Japan’s Nikkei fell 1.77%.

Among the major currency pairs the strongest growth in EUR / USD. The pair rose by 3.04%, ending the week at 1.1196, although at the moment has reached the level of 1.1289.

Precious metals in the week showed a mixed trend. Gold completed a five-day week almost unchanged (-0.08%), collapses after weekly data on the number of applications for unemployment benefits. Silver has appreciated by 2.67%. Brent crude finished the week growth of 1.68% amid continuing expectations of reductions in US production.

eur/usd chart
EUR/USD chart

Economic data:

  • Japan in March, the consumer price index of 2.3% against 2.2% in February
  • UK: April, the index of business activity in the industrial sector, 51.9 vs. 54.6
  • USA: in April, the index of business activity in the industrial sector 51.5 vs. 52.0

Forecast for a week 4 – May 8

Stock market
Not next week there are several quite interesting macroeconomic reports. Of course, the key event will be Friday’s publication of a report on the US labor market. Recall that the previous data reflected the minimum employment growth since December of 2013. Therefore, in anticipation of the release of the market will closely monitor the preliminary indicators. In particular, the employment component in the index of business activity in the services sector, the report on private sector employment from ADP and weekly data on applications for unemployment benefits. Weak statistics may still return the US indices on a growth path since become an additional confirmation that the Fed will not rush to increase rates. Despite the fact that the US regulator of the last accompanying statement removed the wording unlikely to raise rates at the next meeting, the possibility of tightening in June is estimated almost as zero. In light of this statement is quite interesting Janet Yellen. Although it is unlikely that the Fed Chairman will say something new. Thus, we can expect that Dow Jones may aim for a return to the region after the breakdown level of 18067 17976. Nasdaq marks able to attempt to rise to 4555.00.

German DAX30 recently demonstrated the fall. But in the medium term benchmark still has the potential for renewed
growth, as the program of quantitative easing from the European Central Bank continues. It is worth an eye on data on business activity in the industrial and service sectors in Germany. If they are not strong enough, it has once again confirmed that while liquidity injections into the economy of the European Central Bank were unable to “disperse”, which can cause increased expectations of further stimulus by European regulators. Therefore, in the level of 11296 code can be interesting for shopping.

Japan’s Nikkei made a retreat from earlier highs, and at this stage looks quite attractive for shopping. The reason is the same: a policy which chose Japan’s state pension fund. In addition, the national regulator continues to adhere to the same
stimulating monetary policy (and the government encourages even increase the asset purchase program to 90 trillion yen), especially now that the regulator expects the inflation target of 2% will be achieved only in 2016 (and not 2015) year. Therefore, it makes sense to consider opening long positions with a view on the level of 20285 and a further 20,500.

Market of raw materials
Quotations of black gold have every reason to continue the upward movement. It is possible that Brent crude oil on the rise would target the area of ​​the level 68.60 dollars per barrel. Tensions on the border between Yemen and Saudi Arabia and it is stored will continue to support oil quotes. In addition, the market is waiting for the beginning of the decline in production in the United States (and, as predicted, this should happen in May). Especially that according to Baker Hughes number of working rigs in the United States continues to decline (in the United States there are only 679 working oil drilling, so, compared to the same period last year, the drop was 55.5%). In addition, there is reason to believe that with the beginning of “driving season” in the United States will continue to reduce commercial stocks in Cushing, which will help to mitigate the imbalance of supply and demand on the market.

Gold is extremely sensitive to the statistics from the United States. This week the asset can demonstrate impressive movement. The main attention should be focused on data on the US labor market and the employment component in the index of business activity in the services sector. The resumption of growth in the precious metal in the area of ​​the level of 1200 dollars per ounce will be possible only if the statistics released below expectations. Although the latest data on weekly applications for unemployment benefits, reflecting the increase in the minimum bids in the history of statistics, is in this respect some doubts. Hence, there remains the likelihood that indicators will be weak enough to trigger a growth in demand for “safe-haven assets.” So, it is possible, and further fall in XAU / USD to around 1157.92.

Currency market
We can not say a few words about the pair GBP / USD. This week in the UK elections are held. The high degree of political uncertainty (and now in fact extremely difficult to predict their outcome, though, will likely form a coalition) may have on the British currency in the coming days the pressure, which can only worsen the condition that the data on business activity in the construction and service sectors will be below expectations (as was the case with the report on business activity in the industrial sector). Against this background, we should not exclude pair return to the area of ​​1.5030 support. Election results will be announced on 8 May and will likely only then pound able to resume growth.

Warning: Profitability in the past does not mean profitability in the future. Any projections are for informational purposes and do not guarantee the results obtained.

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