Daily Market Digest: FOMC Minutes, Australia jobs report, UK retail sales

May 19, 12:31 pm
Federal Reserve

Image via John Sonderman / Flickr

Hawkish surprise from the FOMC meeting minutes sends the US dollar higher across the board. Australia’s April jobs report shows unemployment rate unchanged. UK’s retail sales post a surprise surge in consumer spending.


Today’s Economic events

  • Japan core machinery orders m/m 5.50% vs. -1.90%
  • Australia employment change 10.8k vs. 12.1k
  • Australia unemployment rate 5.70%. vs. 5.80%
  • UK retail sales m/m 1.30% vs. 0.60%
  • ECB releases monetary policy meeting accounts
  • Canada wholesale sales m/m -1.0 % vs. 0.50%
  • US Philly Fed manufacturing index -1.8 vs. 3.2
  • US weekly unemployment claims 278k vs. 276k

Coming up

  • FOMC Member Fischer speech
  • CB Leading Index
  • FOMC Member Dudley speech

FOMC minutes hawkish

The Federal Reserve is more likely to hike interest rates in June if economic data in the US shows an improvement, the Federal Reserve’s meeting minutes showed yesterday. Despite leaving interest rates unchanged by a nearly unanimous vote, the minutes revealed a more hawkish tone among the Fed members. The views expressed by most policy makers in April, suggests that the central bank is closer to hiking rates once again.

The minutes showed the willingness among policymakers to hike rates if the US economic data pointed to a stronger second quarter growth with firming expectations on inflation and employment. The meeting minutes came as a surprise and was followed by the markets tweaking their expectations. The CME Group’s FedWatch tool saw an increase in the probability of a 25bps rate hike at the June 15th meeting. The implied probability increased to 33.80% from 15% previously. A month ago, the futures markets had a 1.20% probability of a June hike.

Most pointed to the steady improvement in the labor market as an indicator that the underlying pace of economic activity had likely not deteriorated” the minutes showed.

Australian unemployment rate steady at 5.70%

Taking some pressure off the RBA for further rate cuts, latest labor market data released by the Australian Bureau of Statistics showed that the economy’s unemployment rate was unchanged at 5.70% in April. Economists had forecasted an increase in the unemployment rate to 5.80%. The data showed that the economy added 10.8k jobs during the month following March’s 12k net job gains. However, the participation rate fell to 64.80% during the month compared to 64.90% previously. Full-time jobs were lost by over 9k while employed part-time workers increased by 20.2k during the reported month. Most of the job gains from industries such as tourism, hospitality and health care while mining and manufacturing industries continued to cut jobs. The labor market data was largely in-line with economist expectations.

Capital Economics’ Paul Dale sale, “April’s Australian labor market data are unlikely to prompt the RBA to follow May’s rate cut with another reduction at the next meeting in June – we still think the next cut will come at the August meeting.

Retail sales in the UK rise more than expected

British shoppers spent more than expected in April as a surge in the volume of goods sold in stores and online increased 1.30% on the month from March. The April retail sales print beats analyst expectations of a 0.60% increase, data from the UK’s Office for National Statistics (ONS) showed earlier today. Sales were 4.30% higher compared to a year ago. Sales surged with clothing and department store sales rising 1.90% on discounts.

The data provides a positive twist to the UK’s economic data which has been hit by a series of weak economic indicators all suggesting that the threat of an exit from the EU was dragging the economy which already started on a sluggish note. The retail sales numbers which were released a day after yesterday’s monthly jobs report shown a cooling off in the labor markets but overall painted a relatively stable picture.

The retail sales data accounted for nearly 6 percent of the economy’s GDP and was one of the driving forces in the first quarter GDP report. The current upbeat data is expected to lift the second quarter GDP expectations which fell dramatically after UK’s manufacturing sector slipped into contraction while business activity in the services and construction sector slowed down in April.

ECB Meeting minutes: Committed to reviving inflation

The European Central Bank released its policy meeting minutes from April. The details showed that the central bank wanted to re-affirm its commitment towards reviving inflation in the currency bloc. The ECB’s meeting minutes showed that council members broadly agreed that the ECB’s policies were working and that there was a reason to be mildly upbeat about economic prospects. In April, the ECB left monetary policy unchanged after just a month before (March), the central bank cut rates and expanded QE.

According to the minutes, “There was general agreement that there was a need to counter the perception that monetary policy could no longer contribute to a return of inflation” and “It was felt that strongly reiterating the governing council’s commitment to bring inflation back to target without undue delay and sticking to its forward guidance was essential to anchor expectations and support effective monetary transmission.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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