“US Exit From The Iran Nuclear Deal …..”

US Exit From the Nuclear Deal

President Donald Trump said the US will withdraw from the 2015 Iran nuclear deal and will impose the “highest level” of sanctions on the country. The Iran nuclear deal was an agreement reached in 2015 between Iran and the P5+1 group of world powers which are the US, UK, Russia, France and China plus Germany.  Under the agreement Iran would convert and reduce its nuclear facilities and accept the additional protocol in order to lift nuclear related economic sanctions that free up billions of dollars in oil revenue and frozen assets. Trump complained that the accord, did not address Iran’s ballistic missile program, its nuclear activities beyond 2025 or its role in conflicts in Yemen and Syria.  The leaders of the UK, France and Germany issued a statement saying that they will remain committed to the accord and said in a joint statement that the decision by Trump was a cause for “regret and concern”.  Meanwhile, Iranian President Hassan Rouhani suggested his country will continue to abide by the deal.  The decision by Trump raises the risk of conflict in the Middle East and creates uncertainty over global oil supplies.

News From The FED

Federal Reserve Chairman Jerome Powell said market projections for the monetary-policy outlook are “well aligned” with expectations held at the Fed.  He further argued that the role of US interest rates in driving capital flows in and out of emerging markets and global financial conditions should not be overstated.

Currencies

The euro slid to a new 2018 low on Wednesday as more investors are expecting the dollar to rise because of relatively higher interest rates.  The US withdrawing from the nuclear deal should also support the dollar.  Trump’s decision to exit the deal mainly was felt in oil prices as they rallied. US rates have increased in recent weeks on expectations that the Federal Reserve will tighten its policy to combat inflation amid huge government injection of fiscal stimulus under Trump.  Meanwhile, concerns over Italy’s uncertainty in view of new elections is also effecting the euro.  The euro fell 0.3 percent to $1.1828 bringing it to a year to date loss to 1.4 percent.  Sentiment towards the euro cooled after Italian President Sergio Mattarella’s call to rally behind a “neutral government” were met with immediate opposition and raised the prospect of elections as early as July.

US Data

US consumer prices increased modestly in April pointing to a steady build-up of inflation that will keep the Federal Reserve on a path of gradual monetary policy tightening.  Other data on Thursday shows new applications for unemployment benefits holding near more than a 48 year low.  The Labour Department said its Consumer Price Index rose 0.2 percent as increases in the cost of gasoline and rental accommodation were tempered by a moderation in healthcare prices.  In the 12 months through April the Consumer Price Index increased 2.5 percent, the biggest gain since February 2017, after rising 2.4 percent in the comparable period in March.  The personal consumption expenditures price index excluding food and energy, which is the Fed’s preferred inflation measure, accelerated 1.9 percent year-on-year in March.

Trump Welcomes US Prisoners Released By North Korea

President Donald Trump has welcomed home three Americans who had been held prisoners in North Korea.  He thanked Kim Jong Un for their release.  Trump said that “we didn’t think it was going to happen and it did”.  He also said that “my proudest achievement will be – this is part of it-when we denuclearise that entire peninsula”.  The tensions began to ease, coinciding with the participation of the North in the Winter Olympics in South Korea in February. The release of the three men is a victory for Trump at a time when his foreign policy is under criticism after Tuesday’s US withdrawal from the Iran nuclear deal.  Details of a planned summit between Trump and Kim is still to be announced but the president is said to be leaning towards Singapore as the location.

Italy

Italian stocks took a downward turn with Italy’s FTSE MIB closing 1.6 percent lower in the broader European market as the threat of a snap election grew amid concerns over a political turmoil.  Italian banks lost most in the index losing 2.1 percent while Eni, the state controlled oil company was down 2.6 percent.  The Italian stock market has outperformed its European peers this year, however, analysts have warned that political risk was not priced into the market.  President Sergio Matarella called on Monday for Italy’s parties to rally behind a “neutral government”.   The two largest parties, the far-right League and anti-establishment 5-Star Movement opposed the idea and raised the likelihood of an immediate return to the polls.  Meanwhile on Thursday the anti-establishment 5-Star Movement and far-right League have made significant steps towards forming a government, the two parties said, as Italy is looking to end nine weeks of political deadlock.  They gave no indication of who might lead the administration or who could take charge of the key ministries.  President Sergio Mattarella who has the final word over the make-up of any new administration has given the two sides until Sunday to tell him about the outcome of their talks.  The news that a deal was at hand pushed the gap between Italian benchmark bond yields and the safer German equivalent to its widest in seven weeks due to fears that state accounts might be hit.

Bank of England

Policymakers voted 7-2 to keep interest rates unchanged at 0.5 percent in a meeting on Thursday.  The Bank of England said that weak growth during a snowy start to 2018 was likely to be only temporary but wanted to see a pick-up in the economy in the next few months before raising interest rates.  The sterling fell to a day’s low of $1.352 reversing earlier gains, and the yield on two-year British government bonds which are sensitive to monetary policy expectations, fell.    The economy grew more slowly than most of its peers last year, after an increase in inflation arising from Brexit as consumer spending was hit and some businesses delayed long-term investment.  Growth slowed even further in the first quarter of 2018 due to a mix of snowy weather and the pending exit of the UK from the EU.

German Industrial Output

German industrial output in March was stronger than expected and an increase in exports in the same month helped to ease the concerns that growth of Europe’s biggest economy was at a standstill at the start of the year.  The Federal Statistics Office said that industrial production rose 1 percent on the month, which is the strongest increase since November.  According to the Economy Ministry “the upswing remains intact” and the government is expecting growth of 2.3 percent this year up from 2.2 percent in 2017.  Seasonally adjusted exports rose 1.7 percent while imports fell 0.9 percent, widening Germany’s trade surplus to 22 billion euros in March, data showed.  The bullish output and export figures brought some relief after data for January and February pointed to a massive slowdown in the first quarter.

China’s Exports

Exports of China rebounded more strongly than expected in April although there was a serious drop in the previous month.  This suggests that global demand remains relatively resilient despite the trade disputes with the US.   Both exports and imports have increased beyond expectations.   China has outperformed other major Asian trade reliant economies such as Japan and South Korea, recently suggesting that exporters might be ramping up shipments of finished goods and purchases of raw materials and parts in case of supply chain disruptions after the threats.

Turkish Lira

The Turkish lira has been hammered this year over the central bank’s ability to rein in double-digit inflation.  President Recep Tayyip Erdogan and his economy team on Wednesday agreed to take measures to ease interest rates to help the tumbling lira.  Erdogan, a self-described “enemy of interest rates” believes they cause inflation.  He met with the members of his economy team, the central bank governor and the heads of some of Turkey’s biggest top banks to address the sell-off in the lira.   While investors were hoping for an indication that the central bank would have more leeway to tighten the policy, Erdogan promised more of the same according to a statement from the presidency following the unscheduled meeting.  It further said that, “the central bank will continue to use the instruments at its disposal effectively in this regard. “  The presidency also said that banks are also advised to make loans more accessible to the real estate sector.

Vladimir Putin Sworn As President

President Vladimir Putin was sworn in for a new term on Monday and swore to serve the Russian people, to safeguard rights and freedoms and protect Russian sovereignty.  He was sworn for a six-year term after more than 70 percent of voters backed him in an election that happened on 18 March.  The constitution bars him from seeking a third consecutive term.    After the inauguration ceremony, the Kremlin issued a statement saying that Putin had nominated Dmitry Medvedev again to be prime minister in his new term.   Medvedev a loyal lieutenant of Putin has held the job since 2012.   Putin will embark on his new term which is his fourth, supported widely, but weighed down by the costly confrontation with the West, low economic growth and uncertainty about the future when his terms ends.

Oil

Oil prices rose more than 3 percent on Wednesday hitting a 3 ½ year highs, after the US President Trump abandoned an international nuclear deal with Iran and announced the highest sanctions against the OPEC member.  The move by Trump sparked fears of increased tension in the Middle East and uncertainty over global oil supplies.  The impact of Trump’s decision was mostly limited to oil markets and energy-related stocks.  Brent crude futures oil touched its three and a half year high since November 2014 at $77.20 a barrel.  The West Texas Intermediate crude futures hit their highest level since November 2014 at $71.17 per barrel, last up 2.7 per cent.

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