World week ahead: Currencies bend to volatility, Syrian attacks raise oil prices

Foreign exchange ructions have emerged in a market that has largely been resilient to recent stock and bond volatility.

Currencies from Russia to Hong Kong last week posted outsize moves amid worries over global trade and interest rates.

Hong Kong’s dollar hit the lowest level allowed under a more than three-decade-old US dollar-peg agreement, forcing the Monetary Authority to step in and sell US dollars.

Russia’s rouble and Kazakhstan’s tenge tumbled in the wake of further US sanctions on Russian businesses and ahead of the weekend’s missile strikes by the US, UK and France on chemical warfare plants in Syria,  

This could add more volatility to emerging market assets and oil markets, where prices have been rising on concerns that the conflict will disrupt production in the Middle East.

“Rising hostilities in the Middle East tend to push oil prices higher and bond yields lower,” says Jack Ablin, chief investment officer at Cresset Wealth Advisors.

Oil inventories decline
US crude futures for May delivery ended the week at $US67.39 a barrel for a weekly gain of 8.6%, its biggest one-week gain since December 2016.

The International Energy Agency said commercial oil inventories for advanced nations were at their lowest levels since April 2015, a sign that demand is increasing.

The yield on the 10-year US Treasury note logged its second straight weekly gain, reflecting improved risk-appetite among investors and signs the US Federal Reserve is confident about reaching its inflation target. Bonds settled at 2.828%, down from 2.831% on Thursday but up from 2.779% on the previous Friday.

On Wall Street, stocks slipped on Friday but notched gains for the week, buoyed by energy shares and signs that a trade spat between the world’s top economies was easing. Trading was the quietest full session so far in 2018.

The Dow Jones Industrial Average fell 122.91 points, or 0.5%, to 24,360.14 while the S&P 500 lost 0.3% to 2656.30 and the Nasdaq Composite declined 0.5% to 7106.65. All three benchmarks rose more than 1% for the week.

A string of solid earnings reports buoyed stocks in an upbeat start to the first-quarter earnings season. BlackRock, JPMorgan Chase, Wells Fargo and Citigroup all posted results that beat analysts’ expectations.

Retail sales head week’s data
In the week ahead, the US will see data on retail sales and industrial production while China will release its report on first-quarter gross domestic product and the eurozone will get a consumer confidence reading.

On Monday the US Commerce Department releases data on March retail sales. In February retail sales fell 0.1%, marking a three-month slide and presenting a puzzle given conditions including a booming job market and growing worker paychecks should translate into consumer spending. Economists surveyed by the Wall Street Journal expect retail sales increased 0.3% in March.

Economists expect the Chinese economy to have slowed only slightly to 6.7% growth in the first three months, from the 6.8% expansion in the fourth quarter. The GDP figures will be released on Tuesday.

The US Federal Reserve releases data on March industrial production on Tuesday. In February, industrial production rose 1.1% as American factories ramped up production, signalling healthy momentum. Economists forecast industrial production rose 0.4% in March.

Recent economic data out of the eurozone has been surprisingly weak, suggesting growth slowed during the first quarter.

The European Commission’s measure of consumer confidence for April, due on Friday, will give the first indication as to whether that soft patch is set to persist into the second quarter.

Economists expect to see a drop to minus 0.3 from plus 0.1 in March. That would leave confidence at a relatively high level by historical standards but could suggest the best of the eurozone’s recovery has passed.