As we see the first quarter of the year moving away in the rear view mirror, the performance of the US economy is becoming a key driver of markets again. That makes the economic data important for traders and with the PMIs and Non-farm Payrolls announced this week there will be keen interest. We look at the outlook of forex, equities and commodities markets.
Despite a threat to unwind the “Trump trade” last week, financial markets have remains relatively buoyant. Stock markets are pushing higher again with the dollar regaining its poise after a recent correction. However there are differing factors at play across the regions that could drive varied performance. The US economic recovery is going well, despite a large degree of political uncertainty surrounding the potential for President Trump to deliver. A final upward revision to Q4 growth, along with improving inflation and consumer confidence up at levels not see since 2000, the Fed is able to tighten into an improving economy. With the yield on the 10 year Treasury still rangebound but ticking higher, this will be supportive for equity markets and risk appetite over the medium term. However, in Europe there is more of a mixed picture. Whilst the Eurozone growth and PMIs are improving, inflation has eased far more than expected. This, with the efforts of ECB members, has curbed thoughts of an early ECB tightening, subsequently hitting the euro. Brexit is also strongly coming into focus once more, with the UK sending a letter to trigger Article 50 and the EU’s response drawing up the early battle lines. Current tone seems to be conciliatory but stern, which is a promising, if predictable start. However, both sides have a lot to lose in the negotiations, and if realpolitik takes prominence then a hard Brexit could quickly ensue, from which all will be the poorer.