A busy day ahead could see plenty of action in the financial markets, with China-US trade talks and U.S nonfarm payroll and wage growth figures due out later in the day. A pickup in wage growth could get the markets talking about 4 more.
Earlier in the Day:
Economic data released through the Asian session this morning was limited to China’s April service sector PMI figures, with the RBA also releasing its monetary policy meeting minutes from Tuesday interest rate decision.
For the Aussie Dollar, while the RBA’s hold had been widely anticipated, the tone of the minutes were of greater interest following April’s dovish outlook on near-term policy.
- Inflation remains low and stable, 1st quarter inflation figures in line with forecasts in the February Statement on Monetary Policy, attributed to low wage growth and downward pressure on retail prices due to increased competition in the sector.
- GDP growth is expected to be stronger in 2018 and 2019 than in 2017, supported by upward revisions to household consumption and stronger than expected non-mining business investment.
- Risks to the economy continue to be high household debt levels, uncertainty over income growth that could weigh on consumption, uncertainty over the degree of spare capacity in the economy and tensions over global trade.
- There were also concerns raised that global inflation could accelerate more quickly than forecasted that could lead central banks to move quickly on policy, a move that would adversely impact the global financial markets.
The Aussie Dollar moved from $0.75470 to $0.75509 upon release of the statement, which was largely in line with the February statement. At the time of writing, the Aussie Dollar was up 0.35% to $0.7558.
Out of China, the service sector PMI came in ahead of forecasts, rising from 52.3 to 52.9 in April, the increase attributed to improved sales supported by improving market conditions, an increased number of tourists and new product offerings.
China’s composite rose from March’s 4-month low 51.8 to 52.3 in April, easing concerns over the Chinese economy going into the 2nd quarter.
Elsewhere, the Kiwi Dollar was down 0.18% to $0.7029, with the Japanese Yen up 0.16% to ¥109.02 against the U.S Dollar, a broad based equity market sell-off supporting appetite for the Yen, as the Dollar sees a pullback ahead of this afternoon’s stats, caution ahead of a conclusion to trade talks weighing through the session.
The Hang Seng and CSI300 were down 0.35% and 0.16% respectively at the time of writing, while the ASX200 and Nikkei headed into the final part of the session down 0.49% and 0.16% respectively.
The Day Ahead:
For the EUR, economic data out of the Eurozone this morning includes Spanish employment figures, finalized April service sector PMI numbers together with the Eurozone’s March retail sales figures.
Forecasts are for the Eurozone’s Markit Composite PMI to remain unchanged from prelim, which would be in line with March numbers, whilst well below January’s close to 12-year high, recent economic indicators continuing to point to the 1st quarter soft patch spilling into the 2nd quarter. Any downward revisions would certainly be a negative for the EUR, with retail sales also expected to disappoint following Germany’s unexpected fall in retail sales.
From a market perspective, the soft 1st quarter GDP and inflation numbers have pushed back expectations of a shift in ECB policy on deposit and interest rates and should today’s figures continue suggest that the economy will plod along at a similar pace to the 1st quarter, it could be some time before the ECB changes its position and Draghi could have already passed on the baton by then.
At the time of writing, the EUR was up 0.03% to $1.1992, with today’s stats and updates from Beijing on trade talks between the U.S and China the key drivers ahead of this afternoon’s nonfarm payroll and wage growth figures out of the U.S.
For the Pound, it’s a quiet day on the data front, giving the markets time to reflect on this week’s private sector PMI numbers that failed to give hopes of a strong economic rebound in the 2nd quarter, in spite of the bounce back in the construction PMI, the construction sector having been the main drag on 1st quarter growth.
With economic data having provided little comfort, the Pound relatively muted on the release of the construction PMI earlier in the week, Brexit chatter has also yet to provide much needed support.
While the EU will continue to strong arm the UK in trade negotiations, Theresa May’s position at the top continues to look precarious, her plans for the customs union lacking the necessary support that could ultimately lead to her untimely departure from Number 10.
At the time of writing, the Pound was up 0.05% to $1.3582, with any upside likely to come from Dollar weakness than any material shift in sentiment towards BoE monetary policy or Brexit.
Across the Pond, it’s another big day for the Greenback on the data front, with April’s nonfarm payroll and wage growth figures scheduled for release.
With the U.S unemployment rate forecasted to drop to 4%, it’s going to be wage growth that will drive the Dollar this afternoon, any better than forecasted figures likely to cause the markets to reconsider the number of rate hikes for the remainder of the year, a 4th a possibility should momentum in the economy continue and wage growth and inflationary pressures continue to build.
With focus on the stats in the early part of the afternoon, FOMC members Dudley and Williams are also scheduled to speak later in the day, with both members more than capable of giving the markets greater clarity on the FED’s policy stance following the acceleration in inflation and improving economic indicators at the turn of the quarter.
At the time of writing, the Dollar Spot Index was up 0.04% to 92.376, with U.S – China trade talks and today’s stats the key drivers ahead of FOMC chatter later in the day.
Across the borders, economic data out of Canada is limited to April’s Ivey PMI number, which will need to be impressive for the Loonie to shake off the disappointing March trade figures that will likely see GDP numbers reverse at the end of the 1st quarter, following February’s acceleration.
At the time of writing, the Loonie was up 0.04% to $1.2842, with more than oil prices needed for a move back through to C$1.26 levels, a break down in U.S – China trade talks and a favourable conclusion to NAFTA negotiations likely to be the Loonie bulls’ only hope of a near-term rebound.