Seasonal Forces May Overshadow German PPI, US Claims Data

Pre-holiday profit-taking may dominate financial market price action on Thursday, overshadowing the impact of German PPI and US Jobless Claims data.

Talking Points:

• Japanese Yen Outperformed on Nikkei 225 Drop, Kuroda Comments in Asia    

• US Dollar, Euro Look for Cues in German PPI and US Jobless Claims Data    

• Protective Profit-Taking May Drive Volatility in Pre-Holiday Trading Hours

The Japanese Yen outperformed in overnight trade as the Nikkei 225 benchmark stock index declined, boosting demand for the safe-haven currency. Comments from Bank of Japan Governor Haruhiko Kuroda likewise helped. The central bank chief said policymakers’ easing effort is having the intended impact, with the economy moving toward the 2 percent inflation target. The remarks hinted the BOJ may not be quick to expand its easing effort, a move that has been the subject of heavy speculation as softening economic data and April’s 3 percent increase in the sales tax threatened the central bank’s deflation-fighting goals.

The March set of German PPI figures headlines an otherwise uneventful economic calendar in European hours. The pace of wholesale deflation is expected to moderate a bit, with the gauge posting a year-on-year drop of 0.7 percent compared with a 0.9 drawdown in the prior month. While the PPI print is typically not very market-moving, the absence of alternative catalysts may see the report generate some interest, particularly given the pickup in ECB stimulus expansion bets recently. With that in mind, a disappointing print is likely to weigh on the Euro amid a swell in easing expectations, and vice versa.

The US economic calendar is rather light as well, with the weekly set of Jobless Claims numbers on tap. Economists are penciling in mild increases in initial and continuing applications for unemployment benefits. US data flow has started to show notable signs of improvement relative to expectations over the past two weeks, opening the door for an upside surprise. A sizeable-enough positive deviation from consensus forecasts may further erode doubts about the continuity of the Fed’s QE “tapering” cycle, bolstering yield-based support for the US Dollar.

Seasonal considerations are likewise important to bear in mind. Most major financial markets will be closed for the Good Friday holiday, meaning today marks the end of the trading week for a considerable share of investors. In fact, key exchanges in Europe as well as Hong Kong and Australia will be closed through Monday of next week. That means a period of protective profit-taking ahead of the long gap normal trading conditions may be a meaningful driver of volatility in the hours ahead, opening the door for reversals in prevalent trends. Ebbing pre-holiday liquidity may amplify such moves, warning those traders still holding open exposure to tread cautiously in the near term.

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