Dollar Recovers, Euro Area PMI Doesn't

The US dollar is broadly firmer against the major and most emerging market currencies.  The weaker than expected euro zone PMI data is triggering a position adjustment ahead of US jobs data on Friday and the weekend elections in France and Greece.  The poor economic data and Germany (both the BBK and Fin Min) call for no dilution of fiscal efforts can only exacerbate voter anxiety and desire for an alternative to the Berlin Consensus.  

There is really nothing good that can be said of the European PMIs.  For the euro area, the manufacturing PMI came in at 45.9, just below the flash reading of 46.0 and well below the final March reading of 47.7.  Output is at a new five month low and new orders fell as well.  It offers stark contrast to the US figures out yesterday that were stronger than expected in the headline and details, including new orders.  

Even the amazingly resilient German economy is sputtering, it seems.  The PMI stands at 46.2.  The flash had it at 46.3 and it stood at 48.4 in March.  The French deterioration since the flash reading was more significant.  Its 46.9 reading in April compares with the 47.3 flash, but is a tad better than March's 46.7.

Italy's PMI plunged to 43.8 from 47.9.  New orders fell for the 11th consecutive month to stand at 39.2 from 45.7.  Spain is at 43.5, the 12th month it has been below the 50 boom/bust level, compared with 44.4 in March.   Greece is still plunging headlong, with a 40.7 reading, down from 41.3.  New orders and jobs continue to fall.  

Outside the euro zone, Switzerland and Norway also disappointed.  Only Sweden surprised to the upside.  Switzerland is at 46.9 down from 51.1 in March and well below the 50.5 consensus.  Output plummeted to 46.2 from over 52 and new orders fell sharply too (47.8 from 55.3).  Norway's PMI disappointed at 53.7 compared with a 57.0 consensus and 59.3 in March.  Orders fell to 56.8 from 63.8.  In contrast, Sweden's was unchanged at 50.2, but the consensus had feared a drop below 50. 

Separately, the euro area reported unemployment rose to 10.9% in March from 10.8% in February.  Of note the Italian unemployment surged to 9.8%.  A 9.4% rate was expected, but the Feb series was revised to 9.6% from 9.3% initially.  Here too, the news from Germany was disappointing.  There was an unexpected 19k increase in unemployment, though the rate was unchanged at 6.8%, not the improvement to 6.7% as expected. 

For its part, following yesterday's disappointing manufacturing survey, the UK reports a stronger than expected construction PMI of 55.8.  In March it stood at 56.7.  The consensus was for a decline toward 54.0.  Mortgage approvals rose, though more problematic is that M4 contracted 0.8% in March  for a 5% year-over-year decline following a .9% fall in Feb and a 4.1% year-over-year contraction.  Although consumer credit rose slightly, the weakness in M4 warns of potential retail sales weakness.

Lastly, we note that the first Australian bank responded to the larger 50 bp rate cut from the RBA.  IT cut mortgage rates by 36 bp, once again not passing the full extent of central bank easing on to its customers.  This is servicing to reinforce speculation of a follow up 25 bp cut in June.  The OIS market appears to be discounting an almost 2 in 3 chance.  

The euro recovered smartly off the dip below $1.30 on April 16.  A 50% retracement of that bounce comes in near $1.3140, which has been tested; frayed, but largely held.  The 61.8% retracement comes in just above $1.3100.  The $1.3180 area now offers resistance.  

Sterling has largely been confined to yesterday's trading range, but is looking heavy.  A break of $1.6180 would be an early sign, but it likely requires absorbing the demand in the $1.6150-60 area to clear the path for $1.6050-80. 

For the first time in three days, the dollar is holding above JPY80.  It retested initial resistance in the JPY80.60 area, but ran into some mild offers.   Yen strength on the crosses, like against the euro and sterling, appears to be more a reflection of the latter's weakness than the former's strength.  

The US reports the ADP jobs estimate.  The Bloomberg consensus is for 170k, down from 209k in March.  We suspect there is scope for the consensus for the official jobs report to be lowered from the current 167k estimate for the private sector  due to unfavorable seasonal adjustments and the lack of improvement in the weekly initial jobless claims.  Given the national PMI was out yesterday, the NY regional one today is unlikely to grab the market's attention.