Eurozone PMIs: Disappointing start to Q2, suggest under 0.2% GDP growth

    Eurozone PMI manufacturing rose to 47.8, up from 47.5 but missed expectation of 48.1. PMI services dropped to 52.5, down from 53.3 and missed expectation of 53.1. PMI composite dropped to 51.3, down from 51.6, and hit a 3-month low.

    Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

    “The eurozone economy started the second quarter on a disappointing footing, with the flash PMI falling to one of the lowest levels seen since 2014. The data add to worries that the economy has failed to rebound with any conviction from one-off factors that dampened activity late last year, and continues to show only very modest growth in the face of headwinds from slower global demand growth and subdued economic sentiment.

    “The surveys indicate that quarterly eurozone GDP growth has slowed to just under 0.2%. A similar 0.2% rate of expansion is being signalled for Germany but France stagnated and the rest of the region has moved closer to stalling.

    “Manufacturing remained the key area of concern, with output continuing to contract at one of the fastest rates seen over the past six years. Forward -looking indicators showed some signs of improvement but remain deeply in negative territory to suggest the factory malaise has further to run.

    “The slowdown also showed further signs of engulfing the service sector, where growth cooled again to one of the weakest rates seen since 2016. Some encouragement can be gleaned from an improvement in employment growth, although even here the pace of hiring is among the lowest seen for two-and-a-half years.

    “The persistence of the business survey weakness raises questions over the economy’s ability to grow by more than 1% in 2019.”

    Full release here.

    Germany PMI manufacturing ticked up 0.4 from 69-month low to 44.5

      Germany PMI manufacturing rose to 44.5 in April, up from 44.1 but missed expectation of 45.2. It’s staying deep in contraction below 50. PMI services rose to 55.6, up from 55.4, beat expectation of 55.0. PMI composite rose to 52.1, up from 51.4.

      Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

      “The overall picture for Germany’s private sector has changed very little according to April’s flash data, with strong growth across the services economy continuing to counteract the export-led weakness in manufacturing. Though the PMI has ticked up from March’s 69-month low, it’s merely signalling the same modest rate of underlying growth as seen on average over the opening quarter of the year.

      “Slight upticks in the manufacturing indices for output, new orders and employment saw the headline Manufacturing PMI post its first rise in nine months, albeit with the latest reading nonetheless the second-lowest since mid-2012. Amid reports of a declining car industry, strong competition across Europe and generally subdued global demand, the data showed another steep drop in German goods exports and the lowest confidence among manufacturers for six-and-a-half years.

      “The survey continues to highlight strong job creation across the service sector, which is in turn supporting wage growth and means we should see consumer demand continue to rise during the second quarter.”

      Full release here.

      France PMI manfacutring dropped to 49.6, 32-month low, underlying slowdown in demand remains evident

        France PMI manufacturing dropped to 49.6 in April, down from 49.7 and missed expectation of 50.0. That’s the lowest level in 32 months. PMI services, on the other hand, improved to 50.5, up from 49.1 and beat expectation of 49.8. PMI composite rose to 50.0, up from 48.9.

        Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

        “The stabilisation of output in April is further evidence of the dwindling economic impact of the ‘gilets jaunes’ demonstrations. Protestor numbers have fallen to approximately 10% of their peak and the remaining disruption has been limited.

        “However, protests aside, an underlying slowdown in demand remains evident in the French PMI data. New orders fell for the fifth month in a row during April, partly driven by a sixth consecutive contraction in exports. Although the rate of deterioration in new business eased, many panellists mentioned a decline in activity at their clients.

        “More positively, firms were able to brush aside recruitment difficulties and increase staff numbers at a faster pace than in March. Although a mismatch between skills and open vacancies remains apparent, businesses continue to demonstrate the ability to overcome the adverse conditions.”

        Full release here.

        Japan PMI manufacturing improved to 49.5, remained stuck in its rut

          Japan PMI manufacturing rose to 49.5 in April, up from 49.2 and beat expectation of 49.4. Nevertheless, it’s still the third straight month of sub-50 reading. Markit pointed out that weaker demand from domestic and international markets persists, leading output to fall further. But manufacturing employment remains resilient.

          Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

          “Japan’s manufacturing sector remained stuck in its rut at the start of Q2, with the factors which have prohibited any growth such as US-Sino relations, growth fears in China and the turn in the global trade cycle, all remaining prominent risks. Export orders dipped at a stronger rate in April, domestic demand for goods was similarly weak and firms cut their stocks and scaled back production. Yet again, the service sector will need to pick up any slack to help keep Japan’s economy afloat.”

          Full release here.

          Australia NAB business conditions continued broad based easing

            Australia NAB Business Confidence dropped to -1 in Q1, down from 1. Current Business Conditions dropped to 4, down from 9. Business Conditions for the next two months dropped slightly to 22, down from 25. Capex plans dropped to 22, down from 25.

            Alan Oster, NAB Group Chief Economist noted that easing of business conditions continued through 2018 into 2019. And they’re only “just above average”. Together with “negative conditions and forwards orders”, they suggest outlook “remains weak”. And the easing in conditions has been “broad based across most industries and all states”, in particular retail.

            Oster also said: “For now, we will wait and see how leading indicators of the labour market evolve, though we think it is likely the RBA will act to cut the cash rate and bolster the economy should the labour market deteriorate on the back of weaker activity data”.

            Full release here.

            Australia employment rose 25.7k, no imminent need for RBA cut

              Australia employment grew 25.7k in March, much better than expectation of 15.2k. Full time employment rose 48.3k while part time jobs dropped -22.6k. Unemployment rate rose from 4.9% to 5.0%, matched expectations. Participation rate also rose from 65.6% to 65.7%.

              The largest increase in employment was in Queensland (up 10.4k), followed by Victoria (up 10.0k) and South Australia (up 8.5k). The largest decrease was in New South Wales (down 2.6k) followed by Tasmania (down 1.8k). The seasonally adjusted unemployment rate increased in Queensland (up 0.7 pts to 6.1%), South Australia (up 0.2 pts to 5.9%), Tasmania (up 0.2 pts to 6.7%), Western Australia (up 0.1 pts to 6.0%) and New South Wales (up 0.1 pts to 4.3%). The only decrease in the unemployment rate was observed in Victoria (down 0.1 pts to 4.6%).

              The strong gain in full time jobs underlines the robustness in the employment market. However, unemployment rate rose in all regions, only except Victoria, which is a concern. At this point, there is no imminent push for an RBA rate cut in the first up. But situation could worsen ahead that trigger the expected two cuts in the second half. The key will lie in upcoming economic projections in May.

              Full release here.

              AUD/USD’s reaction to the data is rather muted. Further rise is in favor with 0.7139 minor support intact. But so far, AUD/USD bulls are continuing to hesitate to respond to positive news.

              EU announced tariff lists countering unfair US subsides on Boeing

                EU formally announced the list of US imports to be targeted for tariffs as countermeasures on US subsidies to Boeing. The list covers a range of items, from aircrafts to chemicals and agri-food products (including everything from frozen fish and citrus fruits to ketchup), that overall represent around USD20B of US exports into EU. The final list will take into account results of public consultation and WTO  arbitrator’s decision.

                EU Trade Commissioner Cecilia Malmström said: “European companies must be able to compete on fair and equal terms. The recent WTO ruling on U.S. subsidies for Boeing is important in this respect. We must continue to defend a level-playing field for our industry. But let me be clear, we do not want a tit-for-tat. While we need to be ready with countermeasures in case there is no other way out, I still believe that dialogue is what should prevail between important partners such as the EU and the U.S., including in bringing an end to this long-standing dispute. The EU remains open for discussions with the U.S., provided these are without preconditions and aim at a fair outcome.”

                Full statement here. List of products.

                Canadian dollar jumps as core CPI accelerated in March

                  Canadian Dollar rises in early US session as core inflation came in higher than expected. Headline CPI rose 1.9% yoy in March, accelerated from 1.5% yoy but matched expectation. CPI core common was unchanged at 1.8% yoy, matched expectations. However, CPI core median accelerated to 2.0% yoy, up from 1.8% yoy and beat expectation os 1.8% yoy. CPI core trim rose to 2.1% yoy, up from 1.9% yoy and beat expectation of 1.8% yoy.

                  Also from released, Canada trade surplus was smaller than expected at CAD 2.9B in February. US trade deficit narrowed to USD -49.4B in February.

                  USD/CAD dips through 1.3284 support after the releases. But it’s staying above 1.3250 support. There is no change in the view that it’s in consolidation pattern from 1.3467. Rise from 1.3068 is expected to resume sooner or later.

                  Into US session: AUD strongest on China data, German and US yields jump

                    Entering into US session, Australian Dollar remains the strongest one for today, as boosted by better than expected Chinese data. The data further suggests stabilization of slowdown, which is an important factor for the easing global economic risks. While the optimism is not so much reflected in the stock markets, bonds are clearly responding well. German 10-year yield is is now back at 0.08 level while US 10-year yield breaches 2.6 handle.

                    Staying in the currency markets, Euro is the second strongest for today. German government halved 2019 growth forecast to just 0.5%. But it’s largely shrugged off. The key is, Eurozone economy as a whole will certainly be benefited if China could regain some momentum. Canadian Dollar is the third strongest, but could be dragged down by CPI release. On the other hand, New Zealand Dollar is the weakest one as poor Q1 CPI reading raises the chance of an imminent RBNZ cut at next meeting. Swiss Franc and Dollar are the next weakest. Sterling is mixed after slightly lower than expected March CPI.

                    In Europe, currently:

                    • FTSE is down -0.11%.
                    • DAX is up 0.32%.
                    • CAC is up 0.28%.
                    • German 10-year yield is up 0.0111 at 0.082.

                    Earlier in Asia:

                    • Nikkei rose 0.25%.
                    • Hong Kong HSI dropped -0.02%.
                    • China Shanghai SSE rose 0.29%.
                    • Singapore Strait Times rose 0.50%.
                    • Japan 10-year JGB yield rose 0.01 to -0.01.

                    Germany halves 2019 growth forecast to 0.5%

                      Germany’s Economy Ministry lowered 2019 growth forecast to a mere 0.5%, just half of January’s projection of 1.0% (downgraded from 1.8%).  If realized, that would be slowest growth in six years. For 2020m, growth is projected to pick up to 1.5%.

                      Economy Minister Peter Altmaier said externally, slowing global growth, trade tensions and Brexit uncertainty are weighing on the economy. Internally, introduction of the new car emission regulations and  unusually low Rhine water levels are negative factors.

                      The ministry also noted that global economy should regain some momentum ahead. Strong import would mean a negative contribution to growth in 2019, “purely mathematically”.

                      Full release here.

                      Eurozone CPI confirmed at 1.4%, core at 0.8%

                        Eurozone CPI was finalized at 1.4% yoy in March, unrevised, down from 1.5% yoy in February. Core CPI was finalized at 0.8% yoy, unchanged from February’s reading. EU28 inflation was confirmed at 1.6% yoy.

                        The highest contribution to the annual euro area inflation rate came from energy (+0.52 percentage points, pp), followed by services (+0.51 pp), food, alcohol & tobacco (+0.34 pp) and non-energy industrial goods (+0.04 pp).

                        EUR/USD attempts to rally earlier today but fails to take out 1.1324 resistance. It’s staying in range after the releases.

                        UK CPI unchanged at 1.9%, core at 1.8%, Sterling steady

                          In March, UK CPI was unchanged at 1.9% yoy, below expectation of 2.0% yoy. Core CPI was also unchanged at 1.8% yoy, below expectation of 1.9% yoy. RPI slowed to 2.4% yoy, down from 2.5% yoy and miss expectation of 2.6% yoy.

                          PPI input dropped -0.2% mom, rose 3.7% yoy, below expectation of 0.3% mom, 3.9% yoy. PPI output rose 0.3% mom, 2.4% yoy, versus expectation of 0.2% mom, 2.1% yoy. PPI output core rose 0.02% mom, 2.2% yoy versus expectation o f0.1% mom, 2.2% yoy..

                          House price index rose 0.6% yoy in February, well below expectation of 1.3% yoy.

                          EUR/GBP rises mildly today mainly due to Euro’s strength. Sterling’s reaction to the data set elsewhere is muted.

                          China Q1 GDP grew 6.4%. Production, sales, investment rebound. But no one cares except AUD

                            Another batch of data from China released today surprised on the upside. GDP growth came in at 6.4% yoy in Q1, unchanged from prior quarter and beat expectation of 6.3% yoy.

                            In March, industrial production rose strongly by 8.5% ytd yoy, accelerated from 5.3% and beat expectation of 5.6%. Retail sales rose 8.7% ytd yoy, up fro 8.2% and beat expectation of 8.3%. Fixed asset investment rose 6.3% ytd yoy, up from 6.1% yoy and matched expectation of 6.3%. Jobless rate also improved from 5.3% to 5.2%.

                            Recent data from China continued to paint the picture of stabilization in slowdown, and raised hope that recovery is on the way. That’s an important condition for improvement in global outlook.

                            Australian Dollar jumps notably after the release. In particular, EUR/AUD drops through 1.5721 key support and whole decline from 1.6765 might be resuming.

                            However, reactions elsewhere are rather muted. At the time of writing, China Shanghai SSE is just flat. Hong Kong HSI is even down -0.23%.

                            New Zealand CPI slowed to 1.5%, solidifies need for imminent RBNZ easing

                              New Zealand Dollar drops sharply after worse than expected consumer inflation data. CPI rose 0.1% qoq in Q1, below expectation of 0.3% qoq. Annually, CPI slowed to 1.5% yoy, down from 1.9% yoy and missed expectation of 1.7% yoy. Tradeable CPI dropped -0.4% yoy while non-tradeable CPI rose 2.8% yoy.

                              CPI has been persistently weak and remained below mid-point of RBNZ’s 1-3% target range for the eight consecutive quarter. Indeed, CPI has only breached 2% level once in Q1 2017 (2.2%) since 2011. Yesterday, RBNZ Governor Adrian Orr noted that “possibilities of first quarter inflation numbers being undershot have already being factored in the RBNZ’s dovish bias”. The downside surprise is giving Orr an even worse picture and solidifies the imminent need for policy easing.

                              NZD/USD drops sharply to as low as 0.6666 after the release, then recovered on strong Chinese data. Nevertheless, break of 0.6713 support confirms resumption of whole decline from 0.6938. Failure to sustain above falling 4 hour 55 EMA EMA also affirms near term bearishness.

                              NZD/USD should now be on track to 0.6551 support next.

                              Japan exports slumped in March, raised concerns of Q1 GDP contraction

                                In March, in trend terms, Japan’s exports dropped -2.4% yoy to JPY 7.20T. Imports rose 1.1% yoy to JPY 6.67T. Trade surplus came in at JPY 0.53T, up from prior month’s JPY 0.33T. In seasonally adjusted terms, exports dropped -1.0% yoy to JPY 6.61T. Imports rose 2.1% yoy to JPY 6.78T. Trade deficit was at JPY -0.18T.

                                Exports to China, Japan’s largest trading partner, dropped -9.4% yoy, reversing from 5.6% growth in February. Exports to Asia as a whole dropped -5.5% yoy, a fifth straight month of decline. The slump in exports could drag down capital expenditure and private consumption growth . And it raised concerns that the economy contracted again in Q1.

                                Full release here.

                                Amamiya: BoJ mindful of risks including financial imbalances

                                  BoJ Deputy Governor Masayoshi Amamiya said the central bank is “ready to respond” financial crisis threatens the stability of the banking system.

                                  He pointed to experience in the late 1980s, and noted “one of the factors that led to Japan’s asset-inflated bubble was the fact we kept monetary policy easy even as the economy continued to expand”. Hence, “the BOJ must be mindful of the potential risks to the economy and prices, including financial imbalances,”

                                  Regarding monetary policy, Amamiya said “we’re ready to respond if financial problems have a big impact on the economy.”

                                  US raised very large trade deficit with Japan during trade talks

                                    The US Trade Representative issued a statement regarding the meeting of USTR Robert Lighthizer and Japan’s Economic Revitalization Minister Toshimitsu Motegi on April 15-16 in Washington.

                                    In the statement, it’s noted that US and Japan “discussed trade issues involving goods, including agriculture, as well as the need to establish high standards in the area of digital trade”. Also, US raised its “very large trade deficit with Japan – $67.6 billion in goods in 2018.” Both sides agreed to meet again in the “near future to continue these talks”.

                                    Motegi said yesterday that no agreement has been made. But he hoped to reach a “good result” on the talks “at an early stage.” There will be further discussions next week before the US-Japan summit. Meanwhile, discussions regarding exchange rate would be left to finance ministers.

                                    US NAHB index rose to 63, industrial production dropped -0.1%; Canada manufacturing sales dropped -0.2%

                                      US NAHB housing market index rose to 63 in April, up from 62, but missed expectation of 64. Industrial production dropped -0.1% mom in March, below expectation of 0.3% mom. Capacity utilization dropped to 78.8%.

                                      From Canada, manufacturing sales dropped -0.2% mom in February, below expectation of -0.1% mom. International securities transactions dropped to CAD 12.05B in February, versus expectation of CAD 27.34B.

                                      USD/CAD weakens mildly after the releases. But there is no sign of breakout from recent range from 1.3467 yet.

                                      Gold breaks 1280, confirming medium term bearish reversal?

                                        Gold drops notably today to as low as 1278.29 so far. Immediate focus is back on 1276.76 cluster support (38.2% retracement of 1160.17 to 1346.17 at 1275.45).

                                        Sustained break of 1275.45/1276.76 should confirm completion of whole rise from 1160.17. Deeper decline should then be seen to 61.8% retracement at 1234.42 and below.

                                        Nevertheless, break of 1290.10 minor resistance will argue that 1275.45/1276.76 is defended again. Another rise would be seen to extend the consolidation pattern from 1346.71.

                                        OECD: China at a crossroad, should lower external and internal barriers

                                          In an OECD survey report, Deputy Secretary-General Ludger Schuknecht, warned that “China is at a crossroads, facing serious domestic and external challenges to maintaining its strong position over the long-term.”. He urged that “policy should seek to ensure a better functioning economy that delivers stable and inclusive growth for all.”

                                          OECD said China should aim to “further lower import tariffs and dismantle non-tariff barriers and barriers on the entry and conduct of foreign firms, in particular requirements to form joint ventures or transfer technology.” Also, “ongoing fiscal stimulus should avoid directing credit to state-owned enterprises and local governments”

                                          Additionally, there are :wide scope to improve efficiency across the economy, notably by reducing the internal barriers that hinder product market competition and labour mobility.”. And measures include “stronger protection of intellectual property rights; gradual removal of implicit guarantees to state-owned enterprises, allowing them to default; and reduction of state ownership in commercially-oriented, non-strategic sectors.”

                                          Full release here.