Fed Chairman J. Powell, speaking as part of the discussion at the energy club forum, said that the growth rate of the national debt and the budget deficit are of serious concern and one way or another, they require a solution in the long term. The normalization policy led, among other things, to an increase in interest payments on government obligations, and the budget does not withstand pressure.
According to the Congressional Budget Committee, in the first quarter of the 2019 fiscal year, the US budget deficit increased by 92 billion compared to last year, which amounted to $ 317 billion, while revenues remained the same and expenses increased by almost 9%. The main increase in expenditures recorded in the framework of voracious social programs, as well as net interest payments on public debt in December alone, amounted to 47%, and given the exhaustion of the public debt ceiling, this expenditure will only increase, and the budget deficit will exceed a trillion in the very near future.
The minutes of the last meeting of the ECB confirmed that the bank remains satisfied with the current parameters of the monetary policy, the prospects for further growth of the eurozone economy are assessed as optimistic, no real measures were taken to discuss the possible easing.
At the same time, there are some discrepancies between the ECB estimate and emerging market expectations. The ECB assesses the risks of slowing the economy as balanced, but recent PMI data indicate an increase in negative.
Also, the ECB remains confident that higher wage growth will lead to an increase in core inflation, wage growth looks quite dynamic from a historical point of view.
Apparently, the ECB aims to prevent a sharp exit from the “comfort zone”, however, markets believe that the regulator shows excessive optimism that does not correspond to the real state of affairs, and that is why the euro cannot develop its success against the clearly weakening dollar. Data on business activity is getting worse and worse, because of protests in France, PMI is very low in services, production activity in Germany continues to slow down, which ultimately somehow leads to very weak GDP growth in the 4th quarter of 2018.
December inflation fell from 1.9% to 1.6%, largely due to weak prices for oil and oil products, but core inflation also remains at a low level of 1.0%. The only thing that gives some optimism is wage growth, which in December reached a 10-year high of 2.5%. It is possible that inflation will show itself from the second quarter, but so far the euro has not received support from this side.
Technically, the euro still looks like a favorite in tandem with the dollar, aided by a sharp increase in US problems, both political and macroeconomics. EUR / USD came close to the 200-day SMA, the breakdown of which would open the way to the resistance of 1.1813. In the short term, we should expect attempts to update the recent maximum of 1.1570 and gain a foothold above.
The closer the parliamentary vote on Brexit, the gloomier the forecasts. There are no signs that May will be able to gather the majority and approve the draft agreement, the pound is trading in a narrow range in anticipation of news. Support of 1.2705, a resistance of 1.2813, GBP / USD has no direction, out of range can be swift in any direction.
Oil and Ruble
The positive results of the US-China trade negotiations, as well as Saudi Arabia’s intention to raise selling prices for US buyers, contributed to a further recovery in oil prices, even with bearish statistics on US stocks. Most likely, the current price level is close to the maximum, and oil will begin to consolidate. Brent will try to keep above $ 60 per barrel, which suits most players.
The ruble looks confident, but soon the Central Bank will begin to purchase currency for the Ministry of Finance as part of its previously announced plans, which will allow it to flexibly influence its rate and contribute to a rollback in the range of 67 – 68 rubles/dollar.
The material has been provided by InstaForex Company – www.instaforex.com