European Politics, Trade wars and NFP made an Eventful Week

Weekly Report - 04/06/2018

Dynamic Week on the Back of Political Economic factors


European politics dominated the news last week and consequently Italy and Spain ended up with new Prime Ministers. Trade war fears resurfaced as President Trump confirmed steel and aluminum tariffs on Canada, Mexico and the E.U. The NFP report capped off the week with strong numbers.

The Week that was

After weeks of being without a government, the two populist parties in Italy finally formed a coalition government after much wrangling about who was going to be Economy minister. All the uncertainty in Italy caused fear in the markets and revived memories of the 2012 Eurozone crisis. Why? Because Italy is the 3rd largest Eurozone economy and is heavily indebted!

Meanwhile in Spain, Prime Minister Mariano Rajoy is voted out of office in a no-confidence motion and was replaced by Socialist Pedro Sanchez, who is seen as more "pro-European". EUR/USD showed no reaction to this news as it was expected and continued to trade above the $1.16 level after making a strong recovery off a 10-month low that was hit earlier in the week.

In other news, are trade wars back on the table? President Trump imposed tariffs on Canada, Mexico and the E.U. effective June 1st on steel and aluminium imports to the U.S. Naturally, the loonie and the Mexican peso tumbled on the news.

The U.S. jobs report for May beat forecasts in all areas – the actual NFP number, wages and the unemployment rate. The unemployment rate dropped to 3.8% from 3.9%. while the number of jobs created came in at 223k from April’s revised 159k. The dollar rallied on the data especially against the yen, rising above 109.70.


Main Focus This Week

There will be a lot of focus on the Australian dollar this week, especially due to the Reserve Bank of Australia policy meeting on Tuesday. The aussie has already been rallying to an uptick in risk sentiment and got an extra boost early on Monday on the back of strong Australian retail sales numbers. AUD/USD broke above $0.76. Other data out of the country consists of GDP on Wednesday and trade balance figures on Thursday.

Services PMI data will be released around the world but the most important to focus on will be the numbers out of the U.K. and the U.S. which both have a large services sector. Sterling has been rising ahead of the data, trading into the upper $1.33’s.

In the commodities, space, crude oil remains under pressure on expectations of an increase in global output and so markets await the OPEC meeting due on June 22. WTI is trading at its lowest since April, dropping down to the $65 area.

Gold has been suffering due to the stronger dollar and has fallen below the key $1300 level.

Overall risk is back in the markets but may be limited due to trade war fears and the upcoming North Korea meeting.


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