Eurozone (EA19) GDP growth slowed to 0.4% qoq in Q1, down from 0.7% qoq and met market expectations. Annually, GDP grew 2.5%, down from 2.8% in Q4.
EU28 GDP growth also slowed to 0.4% qoq in Q1, down from 0.6% yoy in Q4. Annual rate slowed to 2.4% yoy versus prior 2.7% yoy.
Euro is steadily in range against Dollar and Yen after the release. It tried to recover earlier today but overall, there is no follow through buying.
UK PMI construction rose to 52.5 in April, up fro 47.0 and beat expectation of 50.5. That’s also the highest reading in 5 months. GBP responds positive to the upside surprise and is attempting to rebound.
Comments from Tim Moore, Associate Director at IHS Markit:
“A rebound in construction activity was pretty well inevitable after snowfall resulted in severe disruptions on site during March. House building led the way, with growth in April among the strongest seen over the past two-and-a-half years. However, the picture was less positive in other areas of construction, with commercial building and civil engineering work rising only marginally.
“While temporary factors make it difficult to gauge underlying momentum, the recovery from March’s low point is somewhat underwhelming and provides an indication that the construction sector has been treading water at the very best in recent months.
“A consistent theme so far this year has been fragile demand conditions and subdued volumes of incoming new work. Survey respondents noted that heightened economic uncertainty continued to hold back construction growth in April, with risk aversion among clients leading to delays with spending decisions on new projects.”
Eurozone PMI manufacturing was revised up to 56.2 in April, from 56.0. Markit noted
slower rates of expansion in five of the eight nations covered, and slower increases in new work and employment offset slightly stronger gain in output
Among the countries, Germany PMI manufacturing hit a 9-month low, Italy hit 15-month low and Spain hit 7- month low. France and Ireland performed pretty well by climbing to 2 month high.
Comments from Chris Williamson, Chief Business Economist at IHS Markit:
“The manufacturing sector saw growth weaken further at the start of the second quarter, but let’s not lose sight of the fact that the overall pace of expansion remains encouragingly solid.
“Although growth has slowed markedly compared to the start of the year, December had seen the best performance in over 20 years of survey data collection, with factory activity clearly surging at an unsustainable rate. Since then, supply constraints – including raw material scarcities, supplier delivery delays and skill shortages – have constrained production. Strikes, bad weather and unusually high levels of illness have also plagued businesses.
“Some of these adverse factors are therefore likely to be reversed in coming months, as capacity is increased, supply improves and factors such as strikes and weather cause fewer problems.
“However, anecdotal evidence from the surveys also highlights how demand has been curbed by other issues such as the stronger euro and rising prices. Uncertainty has also intensified due to worries regarding trade wars and Brexit, underscoring downside risks to the outlook.
“While the current pace of growth remains solid, the trend in the surveys in coming months will provide important clues as to the degree to which underlying demand may be waning and the extent to which policymakers should be concerned about the health of the economy.”
The dollar index’s strong rally yesterday showed its true color. With 100% projection of 88.25 to 90.93 to 89.22 firmly taken out, we’re more confident that it’s an impulsive move. Further rise is expected in near term to 161.8% projection at 93.55. Reaction from there, as well as 94.19 fibonacci level, will reveal how powerful the impulse is. For now, near term outlook will remain bullish as long as 90.93 resistance turned support holds.
The impulsive nature of the rebound from 88.25 is a critical element to the case of medium term trend reversal. We’d believe that fall from 103.82 has completed at 88.25 after drawing support from 50% retracement of 72.69 to 103.82 at 88.25, on bullish convergence condition in weekly MACD. It’s early to say whether rise from 88.25 is resuming the long term up trend. But for now, there should at least be a solid break of 38.2% retracement of 103.82 to 88.25 at 94.19. And prospect of reaching 61.8% retracement at 97.87 and above is high.
The China Caixin PMI manufacturing rose to 52.5 in April, up from 51.0, above expectation of 50.9.
Comments from Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group:
“The Caixin China General Manufacturing PMI edged up to 51.1 in April. Output increased at a faster rate last month from March, while the contraction in employment narrowed. However, growth of new business moderated for the second straight month, reflecting weakening demand across the manufacturing sector. Manufacturers are facing a sharply deteriorating foreign demand environment as new export orders declined for the first time in 17 months in April. The rate of output charge inflation eased slightly while growth in input costs posted its first acceleration since September, likely due to increases in crude oil prices. This may squeeze the profit margins of manufacturers and has thus contributed to a decline in the sub-index of future output, a gauge of companies’ confidence in their business outlook over the next 12 months. Stocks of finished goods expanded at a faster rate in April compared to March, suggesting that inventory levels for manufacturers have remained rather high.
“Overall, operating conditions across China’s manufacturing sector continued to improve in April. But uncertainty in exports has increased significantly, and the dependence of the Chinese economy on domestic demand is rising.”
New Zealand employment rose 0.6% qoq in Q1, in line with expectation. Unemployment rate dropped to 4.4%, below expectation of 4.5%. That’s also the fifth consecutive quarter of decline in unemployment rate, and it hit lowest level since December 2008.
In addition, the underutilization rate dropped to 11.9%, down from 12.2%. That reflects 9200 fewer people are were underemployed. Labour force participation rate dropped 0.1% to 70.8%. Employment rate was unchanged at 67.7%.
Below is a video explanation by Stats NZ on the data.
By loading the video, you agree to YouTube’s privacy policy.
Learn more
BoC Governor Stephen Poloz said in a speech overnight that seeing some good pickups in wages in the last 6-8 months, the Canadian economy is in a “phase we call the sweet spot”. And, the policymakers are becoming “more confident” that less monetary stimulus is needed. There is a concern that interest rates are “really low” comparing to anything that can be described as neutral. Interest rates are “headed” higher and the question is just when.
Poloz cited some factors restraining growth, including uncertainty about US trade policies, renegotiation of NAFTA and new mortgage rules. But he noted that “those forces will not last forever”. And, “as they fade, the need for continued monetary stimulus will also diminish and interest rates will naturally move higher.”
But for now, Poloz indicated that the timing of the move will be guided by incoming data. And, it’s too soon to judge the impact of the prior rate hikes on the economy yet.
Gold tumbles sharply today on the back of broad based strength in USD. 1300 handle is now at risk . And, considering the break of 1307.32 support, a double top bottom should be formed (1366.06, 1365.23). 1300 will likely be taken out with relative ease.
More importantly, gold could have been rejected by key fibonacci level of 38.2% Retracement of 1920.94 (2012 high) to 1046.54 (2015 low) at 1380.56 again. 55 week EMA (now at 1296.08) is the first point of support. 1236.66 is the second point of key support. It’s early to say, but firm break of 1236.66 will pave the way to retest 1046.54 low.
US ISM manufacturing index dropped to 57.3 in April, down from 59.3 and missed expectation of 58.5. That’ the lowest level in 9 months. Price paid component rose to 79.3, up from 78.1 and beat expectation of 76.8. That’s the highest level since April 2011. Employment component dropped to 54.2, down from 57.3.
Some comments from respondents:
Dollar shrugs off the weaker than expected headline number and slowing in employment component. Instead, it seems to be reacting to upside surprise in price paid. The greenback is extending recent rally, and even overwhelms Canadian Dollar.
Canadian GDP rose 0.4% mom in February, a solid rebound from January’s -0.1% contraction and beat expectation of 0.3% mom.
As seen in D heatmap, CAD is trading as the second strongest one for today, just next to USD. GBP remains the weakest one after today’s PMI miss, followed by EUR and JPY.
Following up on a post here, EUR/CAD drops through 1.5461 support today. Decline from 1.6151 has resumed and further fall should be seen to 61.8% projection of 1.6151 to 1.5461 from 1.5712 at 1.5286 next.
This is also in line with downside red action bias as seen in EUR/CAD 6H and D action bias charts.
More on EU’s response to US steel tariffs exemption. European Commission criticized that the US decision “prolongs market uncertainty, which is already affecting business decisions”. It reiterated that EU should be given full and permanent exemptions as the tariffs “cannot be justified on the grounds of national security”. Also, EU warned that “as a longstanding partner and friend of the US, we will not negotiate under threat.”
Full statement below
Commission statement following US announcement of an extension until 1 June of the EU’s exemption from US tariffs on steel and aluminium imports
The European Commission takes note of the decision of the United States to prolong the European Union’s exemption from import tariffs on steel and aluminium for a short period of time, until 1st June 2018.
The US decision prolongs market uncertainty, which is already affecting business decisions. The EU should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security.
Overcapacity in the steel and aluminium sectors does not originate in the EU. On the contrary, the EU has over the past months engaged at all possible levels with the US and other partners to find a solution to this issue.
The EU has also consistently indicated its willingness to discuss current market access issues of interest to both sides, but has also made clear that, as a longstanding partner and friend of the US, we will not negotiate under threat. Any future transatlantic work programme has to be balanced and mutually beneficial.
European Commissioner for Trade Cecilia Malmström has been in contact with US Commerce Secretary Wilbur Ross and US Trade Representative Robert Lighthizer over the past weeks, and these discussions will continue.
USD’s rally resumed in European session today, breaking through last week’s high against all major currencies, except CAD.
Momentum is also solid as seen in USD action bias table.
In particular, GBP/USD takes out 1.3711 key support level which indicates medium term reversal. With 6H action bias in downside red all the way through, and D action bias staying in red too, we’d now expect GBP/USD to sustain below this level to confirm the bearish case.
38.2% retracement of 1.1946 (2016 low) to 1.4376 at 1.3448 will be next target.
AUD/USD will be a pair to watch as it’s heading to 0.7500 key support. 6H action bias is staying neutral so far, due to the deceleration late last week and on Monday. But firm break of 0.7500, with 6H action bias turning downside red will indicate solid downside momentum. And the by then, the medium term corrective rise from 0.6826 should be considered finished.
GBP/USD breaks 1.3711 key support today, partly due to USD’s broad based rally, partly due to another data miss. The development suggests that GBP/USD’s medium term rally from 1.1946 has completed and the trend is reversing.
UK PMI manufacturing dropped to 53.9 in April, down from 55.1, below expectation of 54.8. That’s also the lowest level in 17 months.
Comments from Rob Dobson, Director at IHS Markit:
“The start of the second quarter saw the UK manufacturing sector lose further steam. The headline PMI dipped to a 17-month low as growth of production, new business and employment all slowed.
“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance, making the chances of a near term hike in interest rates by the Bank of England look increasingly remote.
“On this footing, the sector is unlikely to see any improvement on the near-stagnant performance signalled by the opening quarter’s GDP numbers.
“Looking ahead, the trend in manufacturing production is likely to remain subdued. Weak demand meant firms are seeing backlogs of work fall and stocks of unsold goods rise, limiting the need for output to rise in May. Business optimism has also dipped to a five-month low as concerns about Brexit, trade barriers and the overall economic climate remained widespread.”
Also from UK, mortgage approvals dropped to 62.9k in March, down from 63.8k, missed expectation of 63.0k. M4 money supply dropped -1.4% mom in March, below expectation of 0.2% mom.
The sharp fall in 10 year yield yesterday, down -0.021 to close at 2.936, is in line with our view that TNX has topped out in near term. And we’ll likely see more downside in near term. First line of defence is at 55 day EMA (now at 2.827). But as mentioned in the weekly report, if fall from 3.035 is correcting the five wave sequence from 2.033, then it could drop further to 2.717 support before completion. We’ll continue to see how it’s playing out given the number of important events in US this week, including FOMC, ISMs and NFP. But after all, having some consolidations before another take on key resistance of 2013 high at 3.036 is not unreasonable.
30 year yield’s sharp fall also confirmed short term topping at 3.219 after failing 3.221 near term resistance. For now TYX would dip lower back to 55 day EMA (now at 3.062). Or it would have another take on 50% retracement of 2.651 to 3.221 at 2.936.
Meanwhile, we’d like to point out again that while there is some downside for yields, we’re not expecting it to drag down the Dollar. Instead, they might just give no support to the greenback.
Some responses from Europe regarding US extension of temporary exemptions on steel and aluminum tariffs.
European Commission criticized that the extension prolongs market uncertainty, which is already having an impact of business decisions. It also reiterated in a statement that “the EU should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security.”
UK Department for International Trade spokesman welcomed the “positive decision”. And the government said in a statement that “We will continue to work closely with our EU partners and the US government to achieve a permanent exemption, ensuring our important steel and aluminum industries are safeguarded.” But, “we remain concerned about the impact of these tariffs on global trade and will continue to work with the EU on a multilateral solution to the global problem of overcapacity, as well as to manage the impact on domestic markets.”
RBA left cash rate unchanged at 1.50% as widely expected. Full statement below
Statement by Philip Lowe, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economy has strengthened over the past year. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. The Chinese economy continues to grow solidly, with the authorities paying increased attention to the risks in the financial sector and the sustainability of growth. Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets. As conditions have improved in the global economy, a number of central banks have withdrawn some monetary stimulus and further steps in this direction are expected.
Long-term bond yields have risen over the past six months, but are still low. Equity market volatility has increased from the very low levels of last year, partly because of concerns about the direction of international trade policy in the United States. Credit spreads have also widened a little, but remain low. Financial conditions generally remain expansionary. Conditions in US dollar short-term money markets have, however, tightened over the past few months, with US dollar short-term interest rates having increased for reasons other than the increase in the federal funds rate. This has flowed through to higher short-term interest rates in a few other countries, including Australia.
The price of oil has increased recently, as have the prices of some base metals. Australia’s terms of trade are expected to decline over the next few years, but remain at a relatively high level.
The Bank’s central forecast for the Australian economy remains for growth to pick up, to average a bit above 3 per cent in 2018 and 2019. This should see some reduction in spare capacity in the economy. Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy. Stronger growth in exports is expected. One continuing source of uncertainty is the outlook for household consumption, although consumption growth picked up in late 2017. Household income has been growing slowly and debt levels are high.
Employment has grown strongly over the past year, although growth has slowed over recent months. The strong growth in employment has been accompanied by a significant rise in labour force participation, particularly by women and older Australians. The unemployment rate has declined over the past year, but has been steady at around 5½ per cent for some months. The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected. Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.
Inflation remains low. The recent inflation data were in line with the Bank’s expectations, with both CPI and underlying inflation running marginally below 2 per cent. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.
The Australian dollar has depreciated a little recently, but on a trade-weighted basis remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.
The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high.
The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
Just before the temporary exemptions on the steel and aluminum tariffs expire today, Trump announced to a 30-day extension on European Union, Mexico and Canada, allowing for further negotiation. Meanwhile, the US has reached trade agreements-in-principle with Argentina, Australia and Brazil and details with be finalized “shortly”.
The White House said in a statement that “in all of these negotiations, the administration is focused on quotas that will restrain imports, prevent transshipment, and protect the national security.” And it added that “these agreements underscore the Trump administration’s successful strategy to reach fair outcomes with allies to protect our national security and address global challenges to the steel and aluminum industries.”
CAD overtakes USD’s place as the strongest major currency today as helped by rebound in oil prices.
Just after we said here that AUDCAD’s decline seemed to be slowing, it accelerated. But after all, there is no change in the view that it’s clearly in a near term down trend. The major target is 0.9578 key support (2017 low). We’ll monitor the reaction there.
Another one to watch is EURCAD. We pointed out here that the corrective rise from 1.5461 could be ending. Subsequent decline proved that it has indeed ended at 1.5172. EUR/CAD is now heading to 1.5461 low with solid downside momentum.
Break of 1.5461 should be seen soon and next target is 61.8% projection of 1.6151 to 1.5461 from 1.5712 at 1.5286.
US personal income rose 0.4% mom in March, below expectation of 0.4%. Personal spending rose 0.4%, in-line with consensus. Headline PCE accelerated to 2.0% yoy in March, up from 1.7% yoy in February, matched expectations. Core PCE accelerated to 1.9% yoy, up from 1.6% yoy, also met expectations.
From Canada, IPPI rose 0.8% mom in March, above expectation of 0.2% mom. RMPI rose 2.1% mom, above expectation of 0.6%.
Also German CPI was unchanged at 1.6% yoy in April, above expectation of slowing to 1.5% yoy.
Dollar is steady after the release. Firm, but limited below Friday’s low except versus Sterling.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
Eurozone unemployment rate unchanged at 8.5%, lowest since December 2008
Eurozone (EA19) unemployment rate was unchanged at 8.5% in March, staying at the lowest level since December 2008.
EU28 unemployment rate was unchanged at 7.1%, staying at lowest level since September 2008.
Among the member states, Czech Republic (2.2%), Malta (3.3%) and Germany (3.4%) recorded lowest unemployment rate.
Greece (20.6% in January 2018) and Spain (16.1%) recorded highest unemployment rate.
Full release here