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Geopolitics Remain the Forefront

Daily Analysis - 23/04/2017

The Turkish Referendum, French Voting, and New Elections in the UK Spur Global Volatility

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Turkish President Erdogan declared victory after a weekend referendum vote, granting him more power while consolidating the government while French polling continues tight as a significant portion of voters remain undecided.  Meanwhile, UK Prime Minister Theresa May called for new summer elections in a bid to win a better mandate for EU negotiations.

Last Week


Volatility in risk assets remained following another week of notable political events.  Gold prices stayed elevated, but failed to overtake the $1300 level, closing out the week slightly lower after multiple rally attempts.  Erdogan’s narrow victory in the Turkish referendum vote has already drawn concerns from Europe, but is likely to create even further friction over the coming months.  In the United Kingdom, Prime Minister May set new elections for June to strengthen the Conservative Party’s mandate to negotiate a comprehensive Brexit agreement.

Apart from the political developments, WTI fell back below $50 per barrel as US production and the rig count continued to climb despite crude stockpiles falling, marking two straight weeks of drawdowns.  US housing data came in stronger than anticipated, with existing home sales managing to rebound by 4.40% to a 5.71 million annualized pace in March after contracting by -3.90% a month earlier.  Moving to Asia, Chinese GDP managed to beat consensus for the yearly figure which came in at 6.90% even though first quarter growth slipped to 1.30%.  For Japan, the trade surplus narrowed as anticipated, but nevertheless managed to beat expectations, coming in at JPY 615 billion compared to forecasts of JPY 576 billion.

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The Week Ahead


The coming sessions start with the first round of voting in the French elections which began on Sunday, which is likely to stoke volatility until the second round of voting.  Election data will be followed by US housing figures, kicking off with new home sales which are expected to fall -0.50% to a 585,000 annualized pace.  These figures will be accompanied by the Case-Shiller Home Price Index composite which is expected to climb by 5.70% year over year through February. The remainder of the week will be dominated by central bank decisions and GDP readings.  The Bank of Japan is expected to hold fast on monetary policy and easing, although inflation figures due later in the session may confirm price gains are starting to solidify.

The European Central Bank will also be announcing interest rates, with no changes anticipated, especially ahead of preliminary CPI figures data due on Friday.  To cap off the week, both the United Kingdom and United States will be releasing advance readings of first quarter GDP.  Annualized UK GDP is expected to accelerate to 2.20% year over year growth while comparable US figures slow to 1.10% expansion versus the 2.10% fourth quarter figure.

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