Daily Market Update: USD Weakness the theme as EUR and GBP rally to make fresh highs
It was a slow and quiet start to the week yesterday with China, Singapore, Hong Kong, UK and others celebrating Labor day , unless you were in Leicester that is.
Leicester City last night won the Premier League title for the first time in their history in one of the greatest sporting stories of all time. Leicester started the campaign as 5,000-1 outsiders for the title after almost being relegated last season but has completed what is being dubbed as “the most unlikely triumph in the history of team sport”. To cap it off snooker player Mark Selby, a Leicester fan, clinched his second World Snooker Championship title a little over 10 minutes after his hometown team won the Premier League crown.
Back to the markets and overnight China PMI data came out slightly lower-than-expected (manufacturing PMI at 50.1 vs 50.3 expected) but importantly stayed above the 50 expansion/contraction level. While the slight deceleration from last month does indicate that the stimulus/credit-led growth might be short-lived, the new orders component stayed elevated at 51.0 and input prices motored higher again to 57.6 (versus just 45.1 in January), verifying March’s PPI uptick and confirming that the reflationary policies are indeed taking hold. The Reserve Bank of Australia lowered the cash rate by 0.25% to 1.75%, citing a weaker outlook for inflation than previously forecast.
The only thing of note in the US session yesterday was manufacturing ISM, which came out a touch soft (50.8 versus 51.4 expected). The USD was weaker against g7 overnight, and the weak ISM helped push EUR/USD above 1.1500 the figure. From a technical perspective 1.1670 is a key level market participants will be monitoring as we start the week in Ireland at 1.1560.
April manufacturing PMIs have been released across the globe over the past few days and that trend continues today with fresh manufacturing PMIs due in the UK. The Markit UK manufacturing PMI edged up slightly in March to 51.0 from 50.8 in February, which was a nearly three-year low for the index. The larger services sector PMI, released Thursday, may be the key economic indicator released in the UK this week.
In the US, vehicle sales are announced today, expectations are for domestic vehicle sales to increase from 13.0m to 13.4m (annualised) and in April for total sales to advance from 16.5m to 17.4m (above the Q1 average) in April. On Wednesday, the ISM non-manufacturing is published and is expected to tick up from 54.5 to 54.8 in April (versus a Q1 average of 53.8). Later that day, the ADP report will provide a lead-in to Friday’s always important payrolls and market expectations are for 198k in April following 200k in March. Payrolls are also expected to print at 200k (market consensus) following 215k in March. This would leave the unemployment rate remaining at 5.0%. Average hourly earnings growth is expected to pick up from 2.3% to 2.4% year on year. A release in line with expectations would represent a continuation of the solid jobs market trends seen in Q1 (amidst sometimes challenging conditions) and may keep discussions around a potential summer tightening on the table.
In the Eurozone, the European commission economic forecasts are released today. Retail sales print tomorrow and expectations are for growth to edge up from 2.4% to 2.6% year on year. ECB governing council member Weidmann also speaks tomorrow.