KUWAIT: US President Donald Trump took another shot at the Fed, once again. Trump who was always a big advocate of lower interest rates claimed that the stock market would be “5,000 to 10,000” points higher if it wasn’t for the hiking cycle of the Fed. Trump added “Quantitative tightening was a killer, should have done the exact opposite.” These comments come days after Fed Chair Jerome Powell told lawmakers that the central bank will not be affected by political pressure. Currently, the market is pricing a 51.9 percent probability of a cut in January of next year.
On the trade front, Brussels has warned that US products ranging from hazelnuts to tractors have the chance of facing tariffs in retaliation for state support to Boeing. The draft list of products published by the European Commission on Wednesday followed a victory for the EU at the WTO, who ruled that Washington had failed to end an illegal tax break to Boeing. The publication of the list came a few days after the US announced similar plans to target up to $11 billion of EU products in response to WTO rulings against Airbus subsidies. With the Brussels draft covering $20 billion of US exports, the EU has underlined that any retaliation would in practice be on a smaller scale.
Strong retail sales
Recent data out of the United States showed a strong rebound in retail sales after slumping in February. Monthly retail sales data for March came at 1.6 percent, significantly higher than the market expectations of 1.0 percent. The report reinforced the impression that weak sales in December were a deviation. The dollar index opened the week at 96.925 and reached a two week high of 97.485 after the upbeat data showcased last Thursday. The dollar index gained as much as 0.58 percent against a basket of currencies, before closing the week at 97.378.
Labor market and Inflation in UK
Average weekly earnings came in unchanged at 3.5 percent in February as expected. The unemployment rate remained steady at 3.9 percent, with the number of people working virtually unchanged at a record high of 32.7 million as the figure has increased by 457,000 over the past year. The unemployment rate is at the lowest it has ever been since 1975 as the jobs market remains robust amidst the Brexit disarray.
Consumer prices came in at 1.9 percent in March – matching the level seen last month while missing the 2.0 percent expected. The monthly figures showed that consumer prices eased 0.2 percent in February, missing the 0.3 percent expected and 0.5 percent seen last. The mixture of revival in consumer spending and further falls in unemployment indicates the UK is boding well under Brexit uncertainty.
Eurozone PMI edges down
The composite PMI for the Eurozone declined unexpectedly yet again. The figure for April came at 51.3 and lower from the previous reading of 51.6. The result was driven by a drop in the service sector, while the manufacturing index remains below the reading of 50.
On the FX front, the single currency traded in a tight rage the past week and reached a two week low of 1.1226 on Thursday amidst weaker data. Nevertheless, a quite week in the FX spectrum as investors and traders got more cautious for the Easter holidays.
Growth in China
The Chinese economy has grown greater than expected in the first quarter of this year. The National Bureau of Statistics reported an expansion of 6.4 percent year-on-year in the first quarter – ahead of the 6.3 percent expected. The figure matched the 6.4 percent growth seen in the final quarter of 2018, however remains significantly below last year’s first quarter figure of 6.8 percent. Aiding the economy – industrial production rose 8.5 percent year-on-year, significantly higher than the 5.6 percent expected, while exports also rose. The CSI 300 index has risen more than 35 percent this year as the economy enjoyed stronger performance and higher confidence. Recently, US President Donald Trump is appearing to back down from his previous threats to escalate his trade war with Beijing – though no official agreement has been made.
The Australian Dollar nudged down last Tuesday after minutes of the last RBA policy meeting revealed that a rate cut would be appropriate if inflation remained low and unemployment went higher. The official cash rate remained on hold at its 32nd month record low at 1.5 percent – marking the longest period of stillness in Australian history. The AUD/USD pair dropped to a low of 0.7173 following the release of the minutes, later recovering and closed the week at 0.7153.
USD/KWD opened at 0.30415 yesterday morning.