How Windy Is It . . .? Tuesday, 29th March 2016 – No.172
How windy was it last week?
Last week’s news was sadly dominated by atrocities carried out by radical Muslim related factions rather than noteworthy economic data. First we had the horrible events in Brussels with the bombs at Zaventem airport swiftly followed by a bomb on a crowded commuter underground train at Maalbeck station. More recently at least 69 people died after the Taliban faction, Jamaat-ul-Ahrar carried out an anti-Christian bombing in Lahore. Most of the people killed were in the event Muslims.
While rightly everyone’s attention was focused on these terrible and indiscriminate actions there was an almost un-noticed rebound in the US Dollar as investors considered the possibility of further US Federal Reserve interest rate tightening over the coming three months. The US Dollar index rose by 1.2% over the week. Over the past 6 days the dollar index rose by 1.6%, erasing nearly all of the losses sparked by the Fed citing global concerns for staying on hold mode in mid-March. Powering these moves has been rhetoric from a number of Fed officials suggesting that policy tightening remains on the table. Patrick Harker (President of the Philadelphia Fed) said that the US should consider raising rates as soon as next month while Charles Evans (President of the Chicago Fed) said ‘two rate increases is not at all unreasonable’. Emerging market currencies were particularly weak with the Russian, South African and Brazilian currencies all tumbling. China’s central bank allowed the Remnimbi to weaken by a cumulative 0.9%. That is the biggest percentage drop since the first week in January, when a 1.1% depreciation fueled a wide sell off in global financial markets.
Looking forward we will have some key announcements that should give us indicators as to the strength of the world’s major economies. Friday’s publication of the US employment data for March should be the highlight. Expectations are for an increase in non-farm payrolls of 200,000 this month (down from 242,000 in February) while the unemployment rate is expected to remain stable at 4.9%. stronger than expected numbers will heighten the expectations for earlier rather than later tightening of policy while weaker numbers or big downward revisions to earlier data will have the opposite effect. Friday also brings the announcement from the US Institute for Management Supply of the Purchasing Managers’ index where expectations are for a return to growth, the first time since last September.
Elsewhere we will have the Purchasing Managers’ report from China, and on Wednesday Germany’s inflation data followed swiftly on Thursday by the announcements of inflation for the single currency area as a whole. While expectations for Eurozone inflation remain low -0.1% (following last month’s -0.2%) the core rate is likely to be a more healthy +0.9%.