Soft US jobs report see’s reduced rate hike expectations
The markets got off on a strong risk aversion sentiment after
last week’s BoJ’s inaction. While the yen surged strongly sending USDJPY
to an 18-month low, gold prices surged over the week and posted a high
above $1300 handle, marking a one year high and testing the January 2015
highs. However, the rally soon fizzled as gold prices retreated into
the latter part of the week.
The US dollar, which was also weaker in the first part of the week, managed to pare losses and posted decent gains, but the rally was capped by Friday’s nonfarm payrolls report. Data from the Labor Department released on Friday showed that the US economy added 160k jobs less than the consensus estimates of 200k. The unemployment rate was unchanged at 5.0% and the average hourly earnings increased 0.30% as expected and up from last month’s 0.20% revised number. Failure to throw any strong surprises and a sub-200k reading saw investors scale back their bets for a June rate hike which is now starting to look increasingly unlikely.
In the UK, monthly PMI’s from Markit showed that the UK’s economy was stalling. Construction and services PMI fell to a 13-year low while manufacturing PMI contracted falling below 50 indicating a slump in the sector. The data follows a weak GDP growth in the first quarter of 0.40%, down from the previous quarter’s 0.60% increase. Brexit remains at the forefront with investors staying cautious on the outcome of the referendum vote, which still remains a close call.
The Reserve Bank of Australia met this week and cut interest rate by 25 basis points to 1.75%. The RBA held the rates steady for nearly a year, when it last cut rates to 2.0% in May 2015. The central bank cited weak inflation as a reason for the rate cut. Later in the week, economic forecasts for Australia showed that the central bank expects a slower pace of inflation, which is now expected to average between one and two percent for the remainder of 2016. This was down from the previous forecasts of 2 and 3 percent. With the exception of the RBA’s rate decision and the forecasts, data from Australia was largely positive with building permits and retail sales both extending gains for the month.
Next Week: Currency Markets
The UK will remain in focus as industrial and manufacturing data is released in the first part of the week. However, this is likely to be overshadowed by the Bank of England’s meeting on Thursday. No changes to policy are expected at this meeting but the BoE could shift to a dovish rhetoric. Investors scaled back their bets on a rate hike from the BoE and now expect a hike sometime in 2017.
From the US, retail sales and PPI data will be closely scrutinized alongside China’s inflation and PPI data, which is broadly expected to show an improvement from March’s data. China’s inflation is expected to rise 2.30%, same as a month ago. In the Eurozone, Germany’s GDP estimates for the first quarter will be coming out following by inflation data for the month of April. Eurozone’s GDP estimates will also be released and is expected to confirm that the euro area economic growth increased 0.60%.
Economic Calendar – Key events
*Time: UK (GMT+1)
The US dollar, which was also weaker in the first part of the week, managed to pare losses and posted decent gains, but the rally was capped by Friday’s nonfarm payrolls report. Data from the Labor Department released on Friday showed that the US economy added 160k jobs less than the consensus estimates of 200k. The unemployment rate was unchanged at 5.0% and the average hourly earnings increased 0.30% as expected and up from last month’s 0.20% revised number. Failure to throw any strong surprises and a sub-200k reading saw investors scale back their bets for a June rate hike which is now starting to look increasingly unlikely.
In the UK, monthly PMI’s from Markit showed that the UK’s economy was stalling. Construction and services PMI fell to a 13-year low while manufacturing PMI contracted falling below 50 indicating a slump in the sector. The data follows a weak GDP growth in the first quarter of 0.40%, down from the previous quarter’s 0.60% increase. Brexit remains at the forefront with investors staying cautious on the outcome of the referendum vote, which still remains a close call.
The Reserve Bank of Australia met this week and cut interest rate by 25 basis points to 1.75%. The RBA held the rates steady for nearly a year, when it last cut rates to 2.0% in May 2015. The central bank cited weak inflation as a reason for the rate cut. Later in the week, economic forecasts for Australia showed that the central bank expects a slower pace of inflation, which is now expected to average between one and two percent for the remainder of 2016. This was down from the previous forecasts of 2 and 3 percent. With the exception of the RBA’s rate decision and the forecasts, data from Australia was largely positive with building permits and retail sales both extending gains for the month.
Gold Futures June’16 ($1289.70), 06/05/2016
The UK will remain in focus as industrial and manufacturing data is released in the first part of the week. However, this is likely to be overshadowed by the Bank of England’s meeting on Thursday. No changes to policy are expected at this meeting but the BoE could shift to a dovish rhetoric. Investors scaled back their bets on a rate hike from the BoE and now expect a hike sometime in 2017.
From the US, retail sales and PPI data will be closely scrutinized alongside China’s inflation and PPI data, which is broadly expected to show an improvement from March’s data. China’s inflation is expected to rise 2.30%, same as a month ago. In the Eurozone, Germany’s GDP estimates for the first quarter will be coming out following by inflation data for the month of April. Eurozone’s GDP estimates will also be released and is expected to confirm that the euro area economic growth increased 0.60%.
Economic Calendar – Key events
| Date | Time | Currency | Detail | Forecast | Previous |
| 09-May |
00:50
|
JPY
|
Monetary Policy Meeting Minutes |
|
|
|
07:00
|
EUR
|
German Factory Orders m/m |
0.70%
|
-1.20%
|
|
|
08:30
|
GBP
|
Halifax HPI m/m |
0.10%
|
2.60%
|
|
|
All Day
|
EUR
|
Eurogroup Meetings |
|
|
|
| 10-May |
02:30
|
CNY
|
CPI y/y |
2.30%
|
2.30%
|
|
|
CNY
|
PPI y/y |
-3.80%
|
-4.30%
|
|
|
09:30
|
GBP
|
Goods Trade Balance |
-11.2B
|
-12.0B
|
|
|
22:00
|
NZD
|
RBNZ Financial Stability Report |
|
|
|
|
|
NZD
|
RBNZ Gov Wheeler Speaks |
|
|
|
| 11-May |
02:10
|
NZD
|
RBNZ Gov Wheeler Speaks |
|
|
|
09:30
|
GBP
|
Manufacturing Production m/m |
0.40%
|
-1.10%
|
|
|
13:45
|
CAD
|
Gov Council Member Wilkins Speaks |
|
|
|
|
15:30
|
USD
|
Crude Oil Inventories |
|
2.8M
|
|
| 12-May |
00:00
|
AUD
|
RBA Assist Gov Edey Speaks |
|
|
|
00:50
|
JPY
|
Current Account |
1.90T
|
1.73T
|
|
|
12:00
|
GBP
|
BOE Inflation Report |
|
|
|
|
|
GBP
|
MPC Official Bank Rate Votes |
0-0-9
|
0-0-9
|
|
|
|
GBP
|
Monetary Policy Summary |
|
|
|
|
|
GBP
|
Official Bank Rate |
0.50%
|
0.50%
|
|
|
|
GBP
|
Asset Purchase Facility |
375B
|
375B
|
|
|
|
GBP
|
MPC Asset Purchase Facility Votes |
0-0-9
|
0-0-9
|
|
|
12:45
|
GBP
|
BOE Gov Carney Speaks |
|
|
|
|
13:30
|
CAD
|
NHPI m/m |
0.30%
|
0.20%
|
|
|
|
USD
|
Unemployment Claims |
277K
|
274K
|
|
|
|
USD
|
Import Prices m/m |
0.60%
|
0.20%
|
|
|
16:45
|
USD
|
FOMC Member Rosengren Speaks |
|
|
|
|
18:30
|
USD
|
FOMC Member George Speaks |
|
|
|
|
23:45
|
NZD
|
Retail Sales q/q |
1.00%
|
1.20%
|
|
|
|
NZD
|
Core Retail Sales q/q |
1.10%
|
1.40%
|
|
| 13-May |
07:00
|
EUR
|
German Prelim GDP q/q |
0.60%
|
0.30%
|
|
10:00
|
EUR
|
Flash GDP q/q |
0.60%
|
0.60%
|
|
|
13:30
|
USD
|
Core Retail Sales m/m |
0.60%
|
0.20%
|
|
|
|
USD
|
PPI m/m |
0.30%
|
-0.10%
|
|
|
|
USD
|
Retail Sales m/m |
-0.30%
|
-0.30%
|
|
|
|
USD
|
Core PPI m/m |
0.10%
|
-0.10%
|
|
|
15:00
|
USD
|
Prelim UoM Consumer Sentiment |
89.9
|
89
|
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