Friday, 17 March 2017

G20 Finance Ministers’ Meeting, Trump/Merkel Meeting, US Industrial Production

As usual this week, events are more important than indicators. The G20 Finance Ministers and Central Bank Governors’ meeting starts today, and Germany’s Chancellor Merkel meets with Trump in Washington. These events are likely to have more impact on the FX markets than the indicators coming out.

The meeting between Trump and Merkel is expected to cover a wide range of issues, including the global economy, trade, NATO, the fight against the Islamic State, and ties with Russia and China. So far Trump’s meetings with visiting heads of government have been mostly sweetness and light, but there are more areas of conflict with Germany, and Merkel has been critical of the new President. This meeting could involve some criticism of Germany’s trade practices, which could be positive for the euro. On the other hand, Trump has shown an inclination to bluster ahead of time and take a more conciliatory tone in person, so the press conference could be a warmer affair that would relieve political pressure on the euro, as happened when Trump met with Japanese PM Abe. Personally, I expect the latter and for EUR/USD to move lower afterwards.

Friday and Saturday, the G20 Finance Ministers and central bank governors gather in Germany to discuss the world outlook. This will be the first such meeting with the new US Treasury Secretary. Normally these meetings are not particularly market-affecting, but this time may be different. The main issue is likely to be what kind of statement against protectionism all the countries can agree on. According to Reuters, the draft communique has removed the group’s usual statement of "opposition to protectionism on trade and investment in all its forms" as well as their pledge to refrain from “competitive devaluations.” On the other hand, it has reintroduced for the first time in over 10 years a reference to “excessive global imbalances.” That could pave the way for countries to intervene in the FX market to rectify trade imbalances, i.e. strengthen the yen and the euro and weaken the dollar. German Finance Minister Wolfgang Schaeuble, who will chair the meeting of his counterparts, has said the group may have to sidestep the issue of trade entirely in order to come to reach a consensus.

As for the indicators, US industrial production is forecast to be up 0.2% mom in a rebound after the previous month’s decline. This would be a fairly good figure as the average over the previous six months has been no increase at all. It therefore might prove positive for the dollar. Capacity utilization is also expected to edge up, although remaining within the range that it’s been in for about a year now, hence not particularly significant.

US consumer confidence is forecast to be slightly higher but not significantly. A figure in line with or around expectations should have little implication for the dollar.

Similarly, the leading index is expected to rise by a little bit less than in the previous month but not significantly and, in any case, more than in many months previously. This too should neither boost nor dampen enthusiasm for the dollar.


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