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USD Bounces Back, GBP In The Doldrum Amid Diappointing Inflation Data

What would Trump do?

This is supremely difficult to answer. Anything can happen, and sometimes does. The Trump administration seems to be more focused on domestic scandals than anything else and is flying by the seat of its pants in most other matters. The President’s disruptive antics could cause an economic contraction, by accident. Nonetheless, the tax cut and the federal spending hike should keep the late-stage business cycle from slowing too quickly. Core inflation should continue to rise gradually, as labour supply tightens, so we still expect the Federal Reserve Bank to hike interest rates three times in 2018 and two in 2018.

Risk aversion is overdone
Concerns over Syria, protectionism and repricing of credit risk have pushed Asian forex lower, especially in the indebted economies. The sell-off provide opportunities to buy the tiger cubs – India, Indonesia and Philippines – with solid structural and cyclical upturns expected. The region’s growth engine is revving strongly. China’s GDP rose 6.8% annually in Q1 2018, beating the market expectations. China’s retail sales increased 10.1% month-on-month in February, up from 9.7% in January

Japan exports less in March

Japan trade surplus continues to arouse the envy of its commercial partners. Maintained at 10 years high, Japan trade balance given at JPY 797.3 billion (USD 7.51 billion) continues to expand, though trade tensions started earlier in the year with the United States. Japan trade surplus also benefitted from intensified trade with its Asian partners, equivalent to JPY 1’005 billion, a level not seen in eight years (5 years average: JPY 255 billion). Accordingly, trade surplus with the US, its second commercial partner after China, slightly decreased at JPY 623.10, a level maintained slightly above its 5 years average.

On the other hand, March exports growth have drastically fallen, valued at 2.10% (consensus: 5.20%), hampered by a decline in mineral fuels, transport equipment and raw materials. Imports endured the same downtrend, decreasing by -0.60% (prior: 16.60%) as shipments from China and Hong Kong slowed down amid US-China confrontation. Decline is felt in electric components, food and manufactured goods.

From a general perspective, yen appreciation since February 2018 remains a big hurdle for Japanese competitiveness (USD/JPY and EUR/JPY -4.73% and -1.89% year to date) and export potential. We remain confident that exports already reaching January lows are not expected to decrease further as the currency impact currently affecting its value in foreign currency is forecasted to decline for the periods to come.

USD/JPY ascension started in March 25th continues, approaching hourly resistance at 107.90 (14/02/2018 high) and heading higher, along the 107.40 in the short-term

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