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FX Update - US data underwhelms

Written by Ian Dobbs on April 8th, 2014.      0 comments

1:00pm(NZT)
Market Overview:
Sentiment in the wider financial markets has remained mixed throughout the course of the last week. There were periods of inactivity as the market waited for the important US employment numbers on Friday. With the European Central Bank (ECB) actively discussing further stimulus, the EURO was saw pressure across the board. The weak EURO and US dollars have seen a pickup in demand for the Australasian currencies as investors chased the higher yield. Whilst the US employment numbers were solid enough, it is obvious the market had been positioned for stronger numbers. Equity markets have been sold heavily since the release, the USD softer and the interest rates moved lower, seemingly in a return to old “pre-QE” market dynamics. Of surprise is the weakness in the US dollar, given the QE tapering process is underway, and the Japanese and European central banks remain on a bias towards further easing.


Australia
A very neutral RBA statement last week was followed by disappointing readings from building approvals and retail sales data. The trade balance did come in better than expected, although its impact in the market was very muted. Yesterday we got data on job advertisements which increased +1.4%, this does come off a very strong previous result of +4.7%. We also got the performance of construction index which came in at 46.2. This marks a small improvement from the previous result of 44.2. Neither of these two releases had any noticeable market impact. Later this afternoon we get business confidence data, and then on Thursday we have employment change to draw focus. The market is expecting a result of +7.3k and unemployment around 6.1%.


New Zealand
The past week has been relatively quiet in terms of economic data from NZ. The main focus has been on the fall in dairy prices at Fonterra’s regular auction and that seemed to trigger a decent correction lower, albeit from very elevated levels, for the New Zealand dollar. Earlier this morning we had the NZIER business confidence index released. The result of 52 matches the previous reading which is the highest level since 1994. The report reinforces the very strong underlying trend in the economy. Later in the week we have the Business NZ manufacturing index to draw focus.


United States
Data from the US last week was generally a little disappointing. Although  the PMI’s from the manufacturing and non-manufacturing sectors improved from the previous reading, the improvement was less than expected. This was especially concerning as the market had been looking for a solid bounce back from previous weather affected results. There was however, an air of optimism in the market heading into Friday’s non-farm payrolls data. Expectations were for a number of 200k or stronger after some leading indicators had suggested such a result. Although the actual reading was close to expectation at 192k, the market was disappointed and sold the USD after the release. Looking into the detail of the report provided a mixed picture. The was a positive revision to the previous result of +22k, but on the negative side average weekly earnings were flat against expectations of a small gain. Overall the report could be described as solid, but not spectacular in any way. This week’s focus comes in the form of the Fed meeting minutes, producer prices, and consumer sentiment.


Europe
Data from Europe last week was mixed, at best, with two releases drawing the major focus. This first was inflation, which printed at only 0.5%, and the second was the ECB meeting. President Draghi’s admission that the option of quantitative easing (QE) was discussed at length does mark a significant shift in thinking at the central bank. They are obviously very concerned about low inflation, but they are hesitant to pull the trigger on extraordinary measures at this stage. The German press ran a story over the weekend saying the ECB has run models to forecast the impact of one trillion Euros worth of QE. Constancio was quoted as saying the next ECB staff projections will consider whether March’s low inflation affects the central banks medium term forecast. This is the key to any future action. He added the near future will be very important to see if inflation has bottomed. If they do embark on a policy of QE over the coming months, the Euro has plenty of room to fall. It has been a lot stronger than many would have predicted over the past six months, considering the state of the Euro area economy. This week we have German trade balance and French industrial production to draw focus, along with the ECB monthly bulletin.


United Kingdom
Data released from the UK last week was all consistent with growth continuing at a decent pace. That being said, a number of the results were a touch below expectation with the PMI’s for manufacturing, construction, and service sectors all undershooting forecasts by a small amount. Governor Carny cemented expectations for a rate hike in the first half of next year when he suggested it could come ahead of May’s general election. If rumours are correct the current positive outlook for the economy will be reinforced by the IMF who are about to significantly upgrade UK growth forecasts when they release their latest projections on Tuesday. This certainly vindicates current government policy and will put a smile on Chancellor Osborne's face who was only last year urged by the IMF to abandon austerity and adopted a “plan B” to secure growth. He’s meeting the IMF today and I’m sure he won’t utter the words ‘I told you so’, but you can bet he’s thinking them. Tonight we get data on manufacturing production and on Thursday we have the BOE meeting and rate statement to draw focus.


Japan
The focus in Japan last week was on the quarterly Tankan survey which was released on Tuesday. The general theme was one of declining expectations, with business obviously nervous about the effects of the sales tax increase that came into force on 1st April. Many forecasters are expecting the impact of this sales tax hike to result in further easing action from the Bank of Japan (BOJ). There has certainly been a lot of comments from Government officials recently that seems to be ramping up pressure on the central bank to act quickly if economic activity takes a hit. We will hear from the BOJ themselves later today at the conclusion of their latest monetary policy meeting. This will be followed later in the week by core machinery orders, the BOJ monthly report, and minutes from the previous BOJ meeting.


Canada
The run of better than expected data from Canada continued on Friday with the release of employment change. The +42.9k result was much better than forecasts that had centred around +22.5k and marks the highest reading since August 2013. The good news continued with unemployment falling to 6.9% from 7.0 previously. This data came on top of better than expected GDP numbers released earlier in the week. Enthusiasm was however tempered a touch by the Ivey PMI result that printed at 55.2 vs expectations for 58.3. This is a volatile series however, and caution is warranted reading too much into one result. Overall the economic picture in Canada seems to be one of an economy outperforming many dire predictions, at least for the time being.


Major Announcements last week:
  • NZ ANZ Business Confidence 67.3% vs 70.8% previous
  • European CPI +.5% vs +.6% expected
  • Canadian GDP +.5% vs +.4%
  • Japanese Tankan Manufacturing 17 vs 18 expected
  • Chinese Manufacturing PMI 50.3 as expected
  • RBA leave the cash rate unchanged as expected
  • European Manufacturing PMI 53.0 as expected
  • UK Manufacturing PMI 55.3 vs 56.7 expected
  • European Unemployment rate 11.9% vs 12.0%
  • US Manufacturing PMI 55.5 vs 57.1 previous
  • US Employment growth 192k vs 200k expected
  • Canadian Employment growth 42.9k vs 20k expected
 

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