Fundamental Analysis Daily

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Aussie Slides On Soft Retail Sales

The Australian dollar has kicked off the week with sharp losses on Monday, as AUD/USD trades at 0.7630. In Australia, Building Approvals posted a gain of 3.1%, but Retail Sales disappointed with a reading of 0.0%. It’s a quiet start to the week in the US, with no major releases. On Tuesday, Australia releases Trade Balance and the Cash Rate. The US will release ISM Non-Manufacturing PMI.

The Aussie slipped 150 points on Monday, as Retail Sales, the primary gauge of consumer spending, missed expectations. The indicator posted a flat reading of 0.0% for the second time in three months and missed the estimate of 0.4%. These weak numbers point to weak consumer demand, which could be detrimental to an economy which has struggled due to the Chinese slowdown and weak global conditions. Market focus will now shift to the RBA, which is expected to maintain the benchmark rate at 2.00% when it makes it rate announcement on Tuesday.

The US labor market remains robust, as underscored by Friday’s employment numbers. Nonfarm Payrolls came in at 215 thousand, above the estimate of 205 thousand. The unemployment rate edged up to 5.0%. Average Hourly Earnings posted a small gain of 0.3%, ahead of the estimate of 0.2%. Still, the positive job numbers didn’t help the US dollar gain any ground on Friday.

The US dollar was broadly lower last week, and the Aussie took advantage, gaining 170 points. The greenback sagged after Janet Yellen’s very dovish comments last week at a speech in New York. Yellen warned of risks to the US economy from uncertainty in the global markets and the slowdown in China, and poured cold water on speculation of an April rate hike. With the US economy in good shape, why did Yellen sound ultra-dovish in her comments? Yellen was likely reacting to comments by several Fed members prior to her speech, which were very hawkish in tone, some going as far as calling for a rate hike this month. The contradictory messages coming out of Fed points to a split in the FOMC concerning monetary policy, although Yellen is likely to have the last word. Mixed messages out of the Fed creates uncertainty that the markets could do without, so analysts will be paying close attention to the Fed minutes on Wednesday, looking for clues as to further rate projections. Traders should be prepared for some volatility after the release of the minutes.

AUD/USD Fundamentals

Monday (April 4)

1:00 Australian MI Inflation Gauge. Actual 0.0%
1:30 Australian Building Approvals. Estimate 2.1%. Actual 3.1%
1:30 Australian Retail Sales. Estimate 0.4%. Actual 0.0%
1:30 Australian ANZ Job Advertisements. Actual 0.2%
14:00 US Factory Orders. Actual -1.5%
14:00 US Labor Market Conditions Index
23:30 Australian AIG Services Index

Upcoming Key Events

Tuesday (April 5)

1:30 Australian Trade Balance. Estimate -2.55B
4:30 Australian Cash Rate. Estimate 2.00%
14:00 US ISM Non-Manufacturing PMI. Estimate 54.1 points

*All release times are DST

 

[SUPERFOREX_AEDIN]

US Futures Higher, Oil Rebounds

U.S. equity markets are expected to start the week on a positive note, with futures currently higher by around a quarter of one percent.

In the absence of any major catalysts in the markets at the start of the week, it seems equities are continuing to be lifted by the prospect that U.S. interest rates will remain lower for longer. The Federal Reserve’s new dovish stance has provided some reassurance to investors that were concerned that a faster pace of tightening could choke off any recovery in the U.S., particularly at a time when conditions are already tightening as a result of the increasingly stimulative policy of other central banks. The release of the FOMC minutes from the March meeting on Wednesday should offer more insight into how fast the pace of tightening will be, with the Fed having already indicated at the last meeting that it now only expects two hikes this year rather than the four it alluded to in December.

Oil has been under pressure once again this morning although it has rebounded early in the session which is probably alleviating some of the downward pressure on indices. That said, there has been a decoupling between oil prices and indices over the last two weeks as the Fed has once again taken over as the main driver, with oil taking more of a backseat. Perhaps the rebound in prices has eased some of the concerns surrounding the industry and the knock on effects it could have on others, with banks coming under some heavy pressure at one point as investors feared the ramifications that rising non-performing loans could have on the sector.

Eurozone unemployment fell to 10.3% in February, down from 10.4% in January and the lowest since August 2011. While we continue to see progress here, it is coming from extremely high levels and the rate of the decline is very slow which suggests that while we’re seeing a recovery, it is very gradual. There is little sign that this is going to pick up either which is concerning, even though the ECB is doing all it can to create an extremely accommodative environment. Despite this very accommodative stance from the ECB, deflationary pressures remain, as seen in the PPI data released alongside the unemployment number.

 

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USD/JPY – Yen Steady at Start of Week

USD/JPY is showing marginal movement on Monday, as the pair trades at 111.60 in the European session. On the release front, it’s a quiet start to the week. In the US, today’s highlight is Factory Orders, with the markets bracing for a decline of 1.5%. In Japan, Monetary Base came in at 28.5%, which was within expectations. On Tuesday, the US will release ISM Non-manufacturing PMI, a key gauge of the strength of the services sector. The index is expected to improve to 54.1 points.

The US labor market remains robust, as underscored by Friday’s employment numbers. Nonfarm Payrolls came in at 215 thousand, above the estimate of 205 thousand. The unemployment rate edged up to 5.0%. Average Hourly Earnings posted a small gain of 0.3%, ahead of the estimate of 0.2%. Still, the positive job numbers didn’t help the US dollar, which lost 100 points against the yen on Friday.

The US dollar had a disappointing week, as USD/JPY slipped almost 200 points. The yen jumped on Janet Yellen’s very dovish comments last week at a speech in New York. Yellen warned of risks to the US economy from uncertainty in the global markets and the slowdown in China, and poured cold water on speculation of an April rate hike. With the US economy in good shape, why did Yellen sound ultra-dovish in her comments? Yellen was likely reacting to comments by several Fed members prior to her speech, which were very hawkish in tone, some going as far as calling for a rate hike this month. The contradictory messages coming out of Fed points to a split in the FOMC concerning monetary policy, although Yellen is likely to have the last word. Mixed messages out of the Fed creates uncertainty that the markets could do without, so analysts will be paying close attention to the Fed minutes on Wednesday, looking for clues as to further rate projections. Traders should be prepared for some volatility after the release of the minutes.

Japan released the Tankan Manufacturing and Non-manufacturing indices for the first quarter late last week, key indicators which are similar to PMI reports. Both indicators lost ground missed their estimates. The Tankan Manufacturing Index slipped to 6 points, its weakest reading since 2013. Analysts attributed the drop to weaker demand for Japanese exports, coupled with a sharp appreciation in the yen. Non-Manufacturing Index followed suit, as domestic spending as dipped. The index dropped to 22 points, its smallest gain in four quarters. The soft readings will undoubtedly raise concerns at the Bank of Japan, which is under pressure to make some monetary moves at its policy meeting in April in order to kick-start the weak economy.

USD/JPY Fundamentals

Sunday (April 3)

23:50 Japanese Monetary Base. Estimate 28.7%. Actual 28.5%

Monday (April 4)

14:00 US Factory Orders. Actual -1.5%
14:00 US Labor Market Conditions Index

Upcoming Key Events

Tuesday (April 5)

14:00 US ISM Non-Manufacturing PMI. Estimate 54.1 points

*Key releases are highlighted in bold

*All release times are DST

 

[SUPERFOREX_AEDIN]

EUR/USD – Euro Slightly Lower, Eurozone Unemployment Rate Steady

The euro is flat on Monday, as EUR/USD is trading at 1.1370 in the European session. On the release front, Eurozone Unemployment Rate remained at 10.3%, matching the forecast. Spanish Unemployment Change was excellent, posting a sharp decline of 58.2 thousand. This was the indicator’s strongest reading in seven months. Eurozone Sentix Investor Confidence improved slightly to 5.7 points, but this was well short of the estimate of 6.9 points. In the US, it’s a quiet start to the week, with no major releases on the schedule.

The US labor market remains robust, as underscored by Friday’s employment numbers. Nonfarm Payrolls came in at 215 thousand, above the estimate of 205 thousand. The unemployment rate edged up to 5.0%. However, wage growth remains weak, as Average Hourly Earnings posted a small gain of 0.3%, close to the estimate of 0.2%.

The US dollar suffered its worst week in two months, as EUR/USD surged some 230 points. The euro took full advantage of Janet Yellen’s very dovish comments last week at a speech in New York. Yellen warned of risks to the US economy from uncertainty in the global markets and the slowdown in China, and poured cold water on speculation of an April rate hike. With the US economy in good shape, why did Yellen sound ultra-dovish in her comments? Yellen was likely reacting to comments by several Fed members prior to her speech, which were very hawkish in tone, some going as far as calling for a rate hike this month. The contradictory messages coming out of Fed points to a split in the FOMC concerning monetary policy, although Yellen is likely to have the last word. Mixed messages out of the Fed creates uncertainty that the markets could do without, so analysts will be paying close attention to the Fed minutes on Wednesday, looking for clues as to further rate projections. Traders should be prepared for some volatility after the release of the minutes.

EUR/USD Fundamentals

Monday (April 4)

7:00 Spanish Employment Change. Estimate +21.3K. Actual -58.2K
8:30 Eurozone Sentix Investor Confidence. Estimate 6.9 points. Actual 5.7 points
9:00 Eurozone Unemployment Rate. Estimate 10.3%. Actual 10.3%
9:00 Eurozone PPI. Actual -0.5%. Actual -0.7%
14:00 US Factory Orders. Actual -1.5%
14:00 US Labor Market Conditions Index

Upcoming Key Events

Tuesday (April 5)

14:00 US ISM Non-Manufacturing PMI. Estimate 54.1 points

 

[SUPERFOREX_AEDIN]

Oil Continues to Retreat, PMIs in Focus

European markets are expected to open lower on Tuesday, tracking similar losses in the U.S. and Asia overnight.

We saw another sell-off in oil on Monday which may have contributed to the losses in equity markets but I’m not convinced at this stage that this was the main driver, given that the relationship has weakened somewhat over the last couple of weeks. We are seeing U.S. indices trading at multi-month highs while in Europe we’ve been in consolidation mode for almost a month, which probably better explains these small losses.

Oil is likely to remain volatile though as the prospect of a coordinated production freeze becomes increasingly less likely. The freeze could have been a first big step towards an agreement to cut production among all major oil producers but it would appear we’re some way from this. In the absence of either though, oil could find itself heading back towards its January lows.

The Nikkei is coming under some serious pressure overnight as the appreciation in the yen continues weigh heavily on the index. With the yen now trading back below 1.11 against the dollar and on course to test last month’s lows, it will be interesting to see if talk of intervention begins to surface again. This has been speculated on a lot recently and you have to wonder how much appreciation Japanese official will tolerate before they’re forced to act. This 1.11 region was touted at times last month but as of yet, there is no sign that this level is being defended this time around.

The Reserve Bank of Australia opted to leave its interest rate unchanged today, as expected, while acknowledging that its currency has also appreciated somewhat, recently. While it acknowledged that this may partially reflect similar gains in commodity prices, it’s clear that any further gains could make it uncomfortable, highlighting that it could complicate economic adjustment. There is clearly potential here for further rate cuts down the road but for now, the RBA is clearly happy to just monitor the situation. The Aussie dollar spiked shortly after the announcement but has since reversed most of these gains to trade back near pre-announcement levels.

Still to come today we have plenty of economic data throughout the European and U.S. sessions. We’ve got services PMIs from the eurozone and U.K. throughout the morning, as well as retail sales data from the former shortly after. This afternoon we’ll get services and non-manufacturing PMIs from the U.S. as well as JOLTS job openings data.

 

[SUPERFOREX_AEDIN]

EUR/USD: Euro Drifting Continues, US Services PMI, Trade Balance Next

The euro is flat on Tuesday, continuing the lack of movement that has characterized the pair so far this week. In the European session, EUR/USD is trading at 1.1380. On the release front, German Factory Orders declined by 1.2%, missing expectations. Later in the day, we’ll get a look at a host of Eurozone Services PMIs as well as Eurozone Retail Sales. In the US, it’s a busy day, with the release of ISM Non-Manufacturing PMI, Trade Balance and JOLTS Jobs Openings.

The German manufacturing sector has been hurt by the Chinese slowdown, as the Asian giant is one of Germany’s major exports markets. This was underscored on Tuesday, as German Factory Orders posted a sharp decline of 1.2%, marking a third straight decline. The markets had expected a gain of 0.5%. Last week, German Manufacturing PMI came in at 50.7 points, pointing to negligible growth in manufacturing. Softness in Germany’s manufacturing sector is reflected in Eurozone numbers, as Eurozone Manufacturing PMI posted only a slightly better reading of 51.4 points.

The US labor market remains robust, as underscored by Friday’s employment numbers. Nonfarm Payrolls came in at 215 thousand, above the estimate of 205 thousand. The unemployment rate edged up to 5.0%. However, wage growth remains weak, as Average Hourly Earnings posted a small gain of 0.3%, close to the estimate of 0.2%. The markets will be treated to more employment data on Tuesday, with the release of JOLTS Jobs Openings. The estimate for February stands at 5.57 million, which would be an improvement from the previous month’s reading of 5.54 million. Strong employment numbers are critical to continued economic growth and are an important factor in the Fed’s decision-making process regarding another rate hike.

Janet Yellen sent the US dollar flying on its backside last week, following a surprisingly dovish speech in New York. EUR/USD surged some 230 points, its strongest weekly gain in eight weeks. Yellen warned of risks to the US economy from uncertainty in the global markets and the slowdown in China, and poured cold water on speculation of an April rate hike. Prior to her speech, several Fed members issued hawkish comments, some going as far as calling for a rate hike at the April policy meeting. The contradictory messages coming out of Fed points to a split in the FOMC concerning monetary policy, although Yellen is likely to have the last word. Mixed messages out of the Fed creates uncertainty that the markets could do without, so analysts will be paying close attention to the Fed minutes on Wednesday, looking for clues as to further rate projections. Traders should be prepared for some volatility after the release of the minutes.