Quietly confident

Don't worry

Towards the end of last week America bombed Syria and US nonfarm payrolls fell well short of forecast. Traditionally a combination like that would have sent the yen through the roof and the stock market through the floor. Not this time though.

As far as the bombing of the Al-Shayrat airfield was concerned, investors did not see it as part of any bigger strategy to commit US forces to Syria. The action also had bipartisan support: Hillary Clinton advocated just such an approach shortly before the attack went ahead. It is also possible that investors were heartened by the evidence that Donald Trump is not as committed to geopolitical disengagement as he had led them to believe. 

Investors' reaction to the US employment data for March was initially one of confusion. It took them several minutes to weigh up nonfarm payrolls which, including revisions to earlier months, were 120k fewer than they had expected. When balanced by a fall in unemployment to 4.5%, its lowest level in nearly ten years, they decided it was alright. There was nothing in the numbers to worry the Federal Reserve or to divert it from its move towards tighter monetary policy.

Be happy

After reading Wednesday's FOMC minutes investors had been concerned that the Fed's push for higher interest rates would be diluted by a desire to "normalize" its balance sheet by running down its stock of bonds. On Friday the president of the New York Fed played down that worry.

William Dudley emphasised that any pause in the process of raising rates would be a "little pause". Investors were still left with the idea that there might be only one more increase this year but were reassured that there would be more to come. Another boost to confidence came from the outcome of the meeting between Donald Trump and Xi Jinping: they agreed to hold trade talks, aiming to deliver results within 100 days.

As a result the US dollar was Friday's top performer, strengthening by four fifths of a cent against sterling and two thirds of a cent against the euro. The Loonie was close behind, helped by the positive news from the States and by a strongish 19.4k rise in Canadian employment.

Word from the chair

A thin agenda today includes nothing likely to set pulses racing during the London session. The highlight does not come until this evening, when Federal Reserve chairperson Janet Yellen will be speaking at the University of Michigan.

Ms Yellen will also be taking questions. So if she doesn't mention the balance sheet/ interest rate trade-off during her speech she will doubtless be tackled on the subject during Q&A.

Today's trickle of ecostats began with mortgage lending falling by a monthly -0.5% in Australia and continued with Norwegian inflation slowing from 2.5% to 2.4%. This morning Italy and Greece report on industrial production and Sentix releases its investor confidence figure for Euroland. Canadian housing starts come out after lunch.