Despite the US GDP showing a strong Q1 growth report on Friday, the dollar was unable to make any progress because the reading was overshadowed by soft inflation data. While Q1 GDP increased at an 3.2% annualised, well above expectations of 2.0%, the core personal expenditure consumption price index increased at only a 1.3%, versus 1.8% in the prior quarter. Because this is the Fed’s preferred inflation gauge, traders declined to push the dollar higher and by the end of the session, with profit taking having set in, the DXY (US$ index) was actually marginally lower at 98.05. While the EU majors were mostly rangebound, the commodity currencies staged a mild recovery from last week’s trend lows, also being assisted by slightly firmer commodity prices. The precious metals and copper were up by around 0.7% and lent some support although Iron Ore fell by 2.2% and may weigh on further gains for the Aud$ at the start of the week. The big mover was oil, which fell by 3.5% as Donald Trump pressed OPEC to cut prices, and doubts grew about the impact of supply squeezes from Russia and Iran. The market was caught long and stop losses quickly accelerated the move lower.
Stock markets closed up by around 0.3%, putting the S+P in line with its all-time high and potential blue sky territory. The Nasdaq is already at its all-time high and the DJI is within touching distance – another 300 points, around 1%, would do it. Stocks liked the idea of strong growth coupled with low inflation, as seen on Friday, and the uptrend seems set to continue.
Note that US yields closed lower, with the US10Y back under 2.5% (US10Y: 2.496%), which will may provide a headwind for dollar bulls in the sessions ahead, as we approach the FOMC Meeting. On the other hand, stocks will welcome the lower yields.
Looking ahead, it is going to be a hectic week with much of the focus being on Wednesday’s FOMC Meeting, but with the BOE Meeting (Thur) and the US Unemployment report (Fri), not far behind. Ahead of that, Monday may be a rangebound session but Tuesday will be busy, with the highlights being the China Manufacturing PMI, the EU Q1 Preliminary GDP, the German CPI/HICP and the US Pending Home Sales and Chicago Purchasing Managers Index. With regard to Australia, the main interest this week will be in housing market data on Thursday/Friday, when the NewHome Sales/Burilding permits are released. Ahead of that, Tuesday sees the release of the March Private Sector Credit.
As far as the central bank meetings are concerned, both the Fed and the BOE are likely to stay on hold, and the interest will lie in the statements/press conferences to come from Powell/Carney. The US jobs data is expected to report a headline number of 3.8% and a NFP figure of 180K. Average Hourly Earnings are expected to increase by 3.4%yy, from 3.2% the previous month. Have a good week.
Economic data highlights will include:
Mon: Japan Holiday, EU Economic Sentiment Indicator, Industrial Confidence, Services Sentiment, Business Climate, US Personal Income/Consumption/Expenditure, Dallas Fed Mfg Business Climate
Tue: NZ Business Confidence/Activity Outlook, Australian Private Sector Credit, China Mfg/Non-Mfg PMIs, Japan Housing Starts, Construction Orders, German Import/Export Index, Unemployment, EU Q1 Preliminary GDP, German CPI/HICP, US Case Shiller House Price Index, Pending Home Sales, Chicago Purchasing Managers Index, Consumer Confidence, API Weekly Crude Oil Stock Inventory
Wed: NZ Unemployment, Australian AIG Performance of Mfg Index, EU Labour Day Holiday, UK/US Mfg PMIs, US FOMC Meeting, ADP Jobs data, ISM Mfg PMI/Prices Paid, Construction Spending, Total Vehicle Sales, EIA Crude Oil Stocks Weekly Change
Thur: NZ Building Permits, Australian New Home Sales, Caixin China Manufacturing PMI, German Retail Sales, EU Manufacturing PMIs, BOE Meeting/Statement/Minutes/Vote Count/APP Facility, US Jobless Claims, ISM NY Business Conditions, Factory Orders
Fri: Australian AIG Performance of Services Index, Building Permits, US Jobs/NFP/Average Hourly Earnings data, Wholesale Inventories, Services/Composite PMIs, ISM Non-Mfg PMI.
Market moves, in brief:
FX: DXY 98.05 (-0.10%)
Bonds: US10Y; 2.496% (-1.67%), German 10Y; -0.021% (-143%), UK 10Y; 1.142% (-1.19%), Australian 10Y; 1.788% (-0.43%), NZ 10Y; 1.91% (+0.53 %), China 10Y; 3.432% (+0.18%)
Stock Indices: DJI; +0.31%, S+P; +0.47%, NASDAQ; +0.34%, EUStoxx50; +0.24%, FTSE100; -0.08%, Shanghai Composite; -1.20%
Metals: Gold $1285 oz (+0.70%), Silver $15.07 oz (+0.85%), Copper $2.884 lb (+0.82%), Iron Ore $91.12 per tonne (-2.17%),
Oil: WTI $62.83 pb (-3.47%)
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