Tuesday, 11 June 2019

BALANCE OF TRADE, US RETAIL SALES AND OIL IN FOCUS

oil drums
Lukman Otunuga,
FXTM Research Analyst

The economic calendar in Nigeria is relatively light this week with the only scheduled Tier 1 report already released earlier this morning.

Though the encouraging balance of trade figures for Q1 are out of the way, investors should not be quick to conclude that this will be a quiet week for Nigeria. It must be kept in mind that local markets are still digesting the volatility in Oil markets and the likely impact of last week’s disappointing US jobs data on the Naira and the economy. Should external factors in the form of trade tensions and global growth concerns impact risk sentiment, emerging markets may feel the pinch, with Nigeria falling into the category.

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Dollar nurses NFP inflicted wounds
The US Dollar is attempting to shake off the hangover from last Friday’s painful selloff with prices trading around 96.7 level at the time of writing.

Despite shedding over one percent so far this month, the current levels in the DXY will be attractive to potential Dollar buyers. The Dollar has managed to show its resilience to periods of weakness several times over the past 12 months, and investors will be closely monitoring whether it will be able to take this latest setback from the employment report in its stride.

What is more concerning for the DXY moving forward is that several US economic indicators in the second quarter have suggested that US economic growth momentum is cooling, raising speculation that the Federal Reserve will need to cut interest rates over the coming months.  The US central bank may well intervene on its monetary policy settings to sustain growth in the world’s largest economy, which is on the cusp of reaching its longest-ever expansion come July.

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Even though ramped-up market bets for a Fed rate cut this year have created a somewhat Dollar-negative environment, those hoping for the DXY to capitulate may be left disappointed, given the relatively weak pushback from other G10 currencies. Economic woes continue to cloud the Euro’s outlook, while the Pound remains mired in the Brexit fog, implying that these fluctuations in the Dollar Index could only provide little upside to other global currencies

There will be a special focus on US inflation and retail sales figures this week following the dismal US jobs report for May. Should these two reports disappoint, market speculation is likely to heighten over the Fed cutting interest rates this year. Such a development will be negative for the Dollar but warmly welcomed by emerging market currencies.

Commodity spotlight – Oil
Brent futures are trading above the $60/bbl support level and on course for three consecutive days of gains, after the Saudi Arabian Energy Minister expressed confidence that OPEC+ producers will prolong their output cuts programme through the second half of 2019.

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With Oil prices recently flirting within a bear market, slowing global demand appears to be featuring prominently on the minds of investors, as the fallout from heightened trade tensions continues to be felt on the global economy. The sustainability of Oil’s recent climb could be determined by the outlooks of several key industry bodies scheduled this week, whereby more downcast projections for global demand will be used as a threat to prompt traders to continue chipping away at Oil’s 15 percent year-to-date gains.

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