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Daily Market Digest: RBA cuts rate, UK Manufacturing PMI contracts

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Reserve Bank of Australia cuts interest rates by 25bps sending the Aussie lower while UK’s manufacturing PMI slips into contraction for the first time since February 2013.

Today’s Economic events

  • Australia building approvals m/m 3.70% vs. -1.80%
  • China manufacturing PMI 49.4 vs. 49.8
  • RBA cuts cash rate to 1.75%
  • UK Manufacturing PMI 49. vs. 51.3
  • Eurozone PPI m/m 0.30% vs. 0.10%

Coming up

  • New Zealand GDT Price Index
  • New Zealand employment change q/q
  • New Zealand unemployment rate
  • BoC Gov. Poloz Speech

Reserve Bank of Australia slashed rates by 25bps

The RBA, at its monetary policy meeting earlier today cut the key interest rate by 25bps to 1.75%, after leaving rates unchanged in nearly a year. RBA Governor Glenn Stevens noted that continued low inflation was the motivation behind the rate cut noting that “very subdued growth in labor costs and very low-cost pressures elsewhere in the world point to a lower outlook for inflation than previously forecast.”

Today’s RBA decision was a very close call although the markets were pricing in an over 55% probability for a rate cut. However, some still believed that the RBA could hold pat and wait for the near term inflation expectations to stabilize. The RBA’s move caught the Aussie dollar off guard which fell strongly on the news, losing over 1.0%. AUDUSD is currently trading at $0.757.

UK Manufacturing PMI contracts in April

Manufacturing PMI in the UK slipped below the 50-level for the first time since February 2013 indicating a contraction in the manufacturing sector. Falling to 49.2 in April from a lower revised 50.7 in March, the data was consistent with the continued shrinking output, data from Markit showed today

The weak performance in the manufacturing sector was due to drag in consumer and investment goods sectors, both of which registered a decline in new work received. Intermediate goods sector managed to sustain its growth output, but new order inflows and rates of expansion were markedly lower than expected.

Rob Dobson, Senior Economist at Markit, said that “On this evidence manufacturing production is now falling at a  quarterly pace of around  1%, and will likely act as a  drag on the economy again during the second quarter and putting greater pressure on the service sector to sustain  GDP  growth.  The manufacturing labor market is also being impacted, with the data signaling close to  20,000 job losses over the past three months“.

US dollar continues to fall for the seventh consecutive day

The US dollar continued to post steady declines, now into its seventh consecutive day. The ICE futures, US dollar index fell to session lows of 92.61 today, falling to a 16-month low. Sentiment in the US dollar fell sharply over the past few weeks with the US Federal Reserve leaving the fed funds rates unchanged in April with the markets expecting to see the central bank hold steady in June. The weaker US dollar sent the euro surging higher, testing $1.160 in early trading today. Yesterday, gold prices touched highs of $1300 on strong risk aversion sentiment. USDJPY continues to post fresh 18-month lows, trading near the 105 – 106 levels. The US nonfarm payrolls data will be due later this week which is expected to show 200k+ jobs in April.

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