Daily Market Update 7 May 2014 - Lots of USD sellin’ ahead of Yellen
Overnight the OECD released their latest global economic outlook<http://www.oecd.org/eco/outlook/Interim-Assessment-Handout-March-2014.pdf> with the group cutting their 2014 global GDP forecast<http://www.oecd.org/eco/outlook/Handout.pdf> 0.2% to 3.4%. Of the major economies the group sees US growth of 2.6%, down 0.3% from their prior estimate, while China’s economy is forecast to grow at 7.4%. The third largest economy, Japan, is now tipped to expand 1.2%, down on the 1.5% pace seen previously, while the world’s largest economic bloc, the Eurozone, is expected to grow by 1.2%.
The US trade deficit narrowed slightly in March with a decline to $40.4b reported<http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf>. While below the downwardly-revised $41.9b deficit of February, the figure missed expectations for a decline to $40b and was higher than the $36.6b deficit recorded in the same month a year ago. Overall exports rose 2.1% to $193.9b, outpacing a 1.1% increase in imports to $234.3b.
Eurozone service-sector activity expanded modestly in April Markit’s PMI gauge rising to 53.1. The reading was in line with the flash estimate released late last month and higher than the 52.2 figure of March with activity now expanding at the fastest pace seen since June 2011. To compare the performance of the ‘Big 4’ nations, Germany, France, Italy and Spain, see below or click here<http://www.markiteconomics.com/Survey/PressRelease.mvc/bcdeb736b9d34fdaac84bca7fd083726> for more details.
Germany<http://www.markiteconomics.com/Survey/PressRelease.mvc/d6d0009719dd48d9a04d632447b0b192>: 54.7 (Flash 55.0, Forecast 55.0, Prior 53.0)
France<http://www.markiteconomics.com/Survey/PressRelease.mvc/a8bd96f07d6f42a3bb9776efe2ce974a>: 50.4 (Flash 50.3, Forecast 50.3, Prior 51.5)
Italy<http://www.markiteconomics.com/Survey/PressRelease.mvc/41228b605b0c41ea8a1ebace36762642>: 51.1 (Forecast 50.5, Prior 49.5)
Spain<http://www.markiteconomics.com/Survey/PressRelease.mvc/5b21d4fdccdb4be4a53585a2d94660df>: 56.5 (Forecast 54.2, Prior 54.2. 7-year high)
Eurozone retail sales grew modestly in March with an increase of 0.3% reported<http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-06052014-AP/EN/4-06052014-AP-EN.PDF>. While well above expectations for a contraction of 0.1%, with February’s 0.4% increase revised down to just 0.1%, much of the gloss was taken off the surprisingly-strong March result.
Doubling up on the good PMI print, Spanish unemployment tumbled in April with a fall of 111.6k reported. The figure was well ahead of the 16.6 decline of March, expectations for a fall of 51k and 46k drop recorded in the same month a year earlier.
UK service sector activity expanded strongly during April with Markit’s PMI gauge<http://www.markiteconomics.com/Survey/PressRelease.mvc/b73ab147eb084d98bc3b90513addad13> rising to 58.7. The reading was above the 57.6 figure of March and expectations for an increase to 57.8 and was the first month-on-month increase recorded since October 2013.
The Day Ahead (All times AEST)
The ASX 200 looks set to give back ground this morning with SPI futures pointing to a fall of 24pts on the open.
Pushing aside contracting service sector activity, consumer confidence at GFC lows, soft trade figures and neutral RBA monetary policy statement, the AUDUSD has leapt higher overnight with USD weakness before FOMC Chair Janet Yellen’s testimony this evening pushing the pair to a high of .9368 in overnight trade. While there is domestic retail sales data released later on today, a noted high-volatility event, and the risk the move could reverse given everyone is expecting another dovish showing from Yellen, a ‘sell the fact’ moment, it’s likely that the Aussie will remain well supported over the course of Asian trade. Support is found at .9350, .9335 and .9317 with resistance located at .9368, .9377, .9391 and again above .9400.
The domestic data deluge continues this morning with the release of retail sales, both the Q1 inflation-adjusted and March figures (1130), along with the AIG-HIA performance of construction index for April (0930). As you would expect given its importance to domestic economic growth, all eyes will be on the retail sales figures with economists expecting Q1 turnover to have risen +1.6%, up from +0.9% in Q4 2013, with March sales expected to log an increase of 0.4%, up from 0.2% in February. If March sales do indeed advance, it’ll be the 11th-consecutive monthly increase, the strongest run of gains since November 2005 to March 2007.
Regional data releases today include New Zealand Q1 unemployment, Japanese services PMI for April along with HSBC’s China services PMI gauge for April. In what will be a turn up for the books, the Kiwi data is likely to garner the largest market reaction today with economists expecting unemployment to hit 5.8%, below the 6.0% level of Q4, with total employment change from year earlier expected to soar to +3.4%.
Data releases this evening include consumer credit, MBA mortgage market index and Q1 productivity figures from the States, factory orders and construction PMI from Germany, trade and industrial production data from France, Eurozone retail PMI along with Canada building permits.
Janet Yellen, US Federal Reserve Chair, testifies before the Joint Economic Committee of Congress this evening at Midnight AEST. In light of recent GDP and unemployment data, markets will be keen to hear her view for the period ahead as the economy recovers from its weather-induced slowdown in Q1. Needless to say, given she’s a noted dove, aside from the March FOMC press conference of course, it’s likely that risk assets will perform well in the lead up to this event.