NFP could be the trigger
Yesterdays, FOMC meeting, and Yellen’s final appearance as Fed Chair went broadly as expected. The Fed left interest rates unchanged but indicating that a March rate hike was on the table. The statement highlighted firming inflation and solid economic data. There were some minor tweaks in the statement language but nothing material. Yet, overall, the meeting was mildly hawkish. Income Fed chair Powell will likely take over where Yellen has left off. Hiking interest rates at his first meeting. Elsewhere ADP reported a 234k increase vs. 185k exp. in private employment during January. Today’s payroll report could be the catalyst for USD corrective rally. Current explanation on why USD is so weak are unsatisfactory. US economic acceleration is out pacing expectations, with data consistently surprising to the upside. While talk of normalization at the ECB and BoJ are in infancy stage.
Despite the obviously improvement of the USD economic and political environment USD continue to be sold-off. With ADP suggesting significant upside in today’s NFP 180 expectation. Tighter labor market will have investors increasing bets on a 4th interest rate hike. We are increasingly concerned about USD ultra-weakness and increased probably of a USD correction especially considering elevated us rates. CHF and JPY are the two currency we suspect USD could see big gains in the short-term.
Russian economy’s first growth since 2014
Russia’s economy is finally back on its feet. Having endured three years of economic downturn, Russia’s Federal Statistics Service finally published 2017 Real GDP Y/Y at 1.50% that remain below expectations (consensus: 1.70%), two months before presidential. Following the announcement USD/RUB decreased by -0.54% and Russian 2 years and 10 years treasuries decreased by -0.39% and -0.77%. The end of the year appeared to be less fruitful with a clear shortfall in industrial production (November and December industrial production at -3.60% and -1.50% respectively) and a clear decrease in Russian’s purchasing power for four years in a row (2017 inflation: 2.50%).
2015 and 2016 were difficult times for Russia who suffered from Crimea annexation in March 2014 and 2015 recession, essentially caused by the fall in energy prices and continuous trade tensions with EU and US economies.
Russian economy is recovering from recession and should, again, present clear signs of improvement in 2018, strongly supported by factors that have remained weak during previous periods and namely the energy sector that endured strong price and production decrease as well as weakened manufacturing sector that is now providing signs of resumption (December Markit Manufacturing PMI at 52.1).
