Overview: Stronger than expected eurozone GDP
strengthened the sense that a nascent recovery may be taking hold and has given
the euro a bid in the European morning. The dollar, though, is enjoying a
firmer tone against the other G10 currencies today. Australia's unexpected
weakness in retail sales has weighed on the Antipodean currencies. The Aussie
and Kiwi are off slightly more than 0.5% today. Japanese data were mixed (a
recovery in industrial production but weakness in retail sales) and the market
has taken the dollar to almost JPY157. It had settled near JPY156.35 yesterday.
The market is still treading gingerly after yesterday's drama and possible
intervention. Emerging market currencies are mixed, with Turkey and Hungary
leading the advancers and the South Korean won and South African rand off
0.25%-0.35%, to lead the decliners.
Japanese stocks rallied strong
coming back from the long weekend. The Topix rose by more than 2%. Chinese and
Hong Kong stocks trading weaker. Outside of Taiwan, other markets in the region
generally traded firmer. Europe's Stoxx 600 is off for the first time in three
days, and US index futures are trading softer after the major indices gained
about 0.35% yesterday. European benchmark 10-year yields are mostly 2-3 basis
points higher, and the 10-year US Treasury is near 4.63% (from 4.61% yesterday).
Gold, which fell 2.25% last week, its first decline in six weeks, is continuing
to trade heavily. It is off around $19 to $2316 today. Last week's low was near
$2291. June WTI rose by almost 2% last week, the first weekly advance in three
weeks. It gave back a most it with yesterday's nearly 1.5% decline. It has
stabilized today and is up around 0.35% to approach $83.
Asia Pacific
China's April PMI softened. The manufacturing PMI slipped to 50.4 from
50.8 while the non-manufacturing PMI eased to 51.2 from 53.0. The composite
fell to 51.7 from 52.7. Recall that the composite PMI fell every month in Q4 23
to finish the year at 50.3. It had jumped from 50.9 in February to 52.7 in
March. The Caixin manufacturing PMI held in better, rising from 51.4 from 51.1.
The March reading was the best since February 2023. Many observers continue to
look for additional stimulative measures from the government, but with the yuan
under pressure, expectations are for fiscal measures. That said, there is
speculation in some quarters that officials will sanction of large depreciation
of the yuan. Mainland markets are closed for the rest of the week.
After a rough start to the
year, Japan's industrial production jumped 3.8% in March. The earthquake and auto scandal has
spurred a 6.7% collapse in industrial output in January and a 0.6% decline in
February. Retail sales had fallen by about 2% in Q4 23 nearly recouped it in
the first two months of the year. In fact, the 1.7% February increase was the
largest since early post-pandemic period. However, consumers pulled back in
March and retail sales fell by 1.2%. Separately, unemployment reportedly
slipped to 2.5% in March from 2.6% in February. It has been between 2.4% and
2.6% with one exception since February 2022. It was unchanged in March at the
upper end of the range. The job-to-applicant ratio was rose from 1.26, which is
the lowest since May 2022 to 1.28. Japan reports Q1 GDP in mid-May. The median
forecast in Bloomberg's monthly survey sees the economy contracting by 0.2%.
Australia reported a 0.3%
gain in private sector credit and an unexpected 0.4% decline in March retail
sales. The extension
of credit averaged 0.4% a month last year and closer to 0.65% a month in 2022.
Australian retail sales fell in Q4 23 and recovered in Q1 24. Retail sales
jumped 1.1% in January and grew another 0.3% in February before the weakness in
March. Australia does not report Q1 GDP until early June. Economists expect the
economy expanded by around 0.3%. Australia's two-year yield jumped 30 bp last
week, the most among G10. It fell two basis points yesterday and a little more
than six basis points today.
A few press accounts cited
some bankers claiming intervention did take place yesterday. It may have, but the market may have done
it to itself, as well. The ambiguity is sufficient to keep many participants
away. The dollar reached a high in North America near JPY156.90 and a low
around JPY156.10. Still, the close was the highest, with the exception of last
Friday's exaggeration (~JPY158.35). The dollar has recovered to almost JPY157
today. Around the time that the dollar peaked against the yen on
Monday, the Australian dollar peaked slightly above $0.6585, a 14-day
high. It consolidated in North America between about $0.6545 and
$0.6575. It has been setback today and was sold to a three-day low near
$0.6515. A break of $0.6500 could spur another quarter-cent to half-cent
retracement. The five-day moving average crossed above the 20-day moving
average, illustrating the strong momentum seen last week as the Aussie
rebounded from the year's low (~$0.6365 on April 19). The PBOC set the
dollar's reference rate at CNY7.1063 (CNY7.1066 yesterday). The
average in Bloomberg's survey was CNY7.2432 (CNY7.2460 yesterday). The dollar
fell by about 0.4% against the offshore yuan yesterday, its biggest pullback so
far this year. The greenback is slightly firmer against the offshore yuan
today, now near CNH7.25. The offshore yuan, like the yen, are attractive as
funding currencies. Beijing is a beneficiary of the yen's recovery, through
intervention or otherwise.
Europe
The eurozone reported Q1 GDP
and the preliminary April CPI. The eurozone economy expanded by 0.3%. The economy had contracted
in both Q3 and Q4 last year. Germany grew by 0.2% (though Q4 23 was revised to
-0.5% from -0.3%). France grew by 0.2%. The periphery performed better. Italy
reported a 0.3% expansion and Spain grew by 0.7%, the same as the Q4 23
(initially 0.6%). Separately, and consistent with the better numbers seen from
Germany recently, it also reported its first increase in retail sales since
last October. The 1.8% gain offset February's revised 1.5% drop (from -1,9%).
April's CPI, more important for monetary policy, was in line with expectations.
It rose 0.6% month-over-month for a steady 2.4% year-over-year rate. The core
rate eased, as expected, to 2.7% from 2.9%.
The euro remained within the
pre-weekend range yesterday (~$1.0675-$1.0755) and continues to do so today. The single currency dipped below $1.07 in
early North American turnover yesterday and buyers emerged. It spent most of
the session above $1.07. It retested yesterday's low today before recovering
with the GDP reports. It traded slightly above $1.0735. The euro needs to get
back above Friday's high to be meaningful. The trendline drawn from the March
and April highs is approaching $1.08, around where the 200-day moving average
is found. Sterling pushed above its 200-day moving average (~$1.2555)
yesterday and reached a two-and-a-half week high near $1.2570. It is
trading in the upper end of yesterday's range and has held below
$1.2665. Nearby resistance is seen near $1.26, which corresponds to the
50% retracement of the losses since the year's high was set in early March
slightly below $1.29 and where the trendline off the March and April highs can
be found. Support is likely in the $1.2515 area.
America
Before the pandemic unit
labor costs were rising at an average annualized quarterly pace of slightly
more than 2.8%. In
2022, it was 5% and last year slowed to almost 4%. It is seen rising at that
pace the January-March period this year. This is a more comprehensive view of
labor's cost than the hourly earnings data because it includes indirect costs,
like Social Security contributions, medical benefits, taxes, and the like).
However, even this gives an incomplete measure, as output measures are not
included. Unit labor costs include productivity. Also on tap, the US reports
house prices and the Conference Board's measure of consumer confidence. Neither
are typically market-movers. The same can be said of the Chicago PMI and the
Dallas Fed services survey. The market is eager for jobs data, and it will
begin tomorrow with the ADP estimate, the JOLTS report, and ISM, ahead of the
outcome of the FOMC meeting.
Canada reports February GDP
today. The Canadian
economy continues to recover after contracting in Q3 24. It expanded by 1.0% in
Q4 23 (annualized rate). The economy appears to be maintaining that pace in Q1
24. Canada reported 0.6% growth in January and is expected to have expanded by
0.3% in February. For its part, Mexico reports Q1 GDP today and there may be
some downside risk to the 0.1% median forecast in Bloomberg's survey. Weaker
public sector investment may have weighed on construction. Industrial
production and retail sales have also been soft. Colombia's central bank is
widely expected to deliver another 50 bp rate cut later today. It would bring
the minimum repo rate to 11.75%. The rate peaked last year at 13.25%. Headline
CPI has fallen from about 13.3% at the end of Q1 23 to almost 7.3% last month.
The US dollar recorded the
year's high against the Canadian dollar in mid-April near CAD1.3845. It has fell to a two-and-a-half week low
near CAD1.3630 yesterday. The CAD1.3620 area corresponds to the (61.8%)
retracement of the greenback's gains off the early April low (~CAD1.3480).
Still, the US dollar's downside momentum slowed in recent days, and it is
trading with a firmer bias today. On the topside, a push above the CAD1.3725
area would suggest a low is in place. The US dollar briefly traded
below MXN17.00 yesterday for the first time in three days. Within the
emerging market complex, Latam currencies were three of the top four
performers. The Chilean peso, South African rand, and Colombian peso all rose
by around 1.0%. The Mexican peso, in fourth place, rose by about 0.8%.
Participants still want to be compensated for the recent flash crash that saw
the peso sell off by nearly 7% in around an hour. One-month implied vol is near
11.1%, near the 200-day moving average. It was below 7.5% at the start of the
month. The dollar is soft today, but a break of last week's low, near MXN16.91,
is important to continue to healing process after the flash crash.
Reviewed by Marc Chandler
on
April 30, 2024
Rating:
