RBA, UK PMI, US NFP – Markets this week (May 2 – 6)

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The markets opened this week on a subdued note, fresh from the previous week’s BoJ inaction. Investors continued to bid the yen into the first part of the week but soon trimmed their positions as the yen fell back and the dollar gained strength. Gold prices posted a new high this week, briefly trading above $1300, marking a one-year high before pulling back sharply. Oil prices were also volatile after briefly falling, only to recover after news of supply disruptions from Libya and the wildfires in Canada.

Here’s a quick recap of this week’s economic events that shaped the markets.

PMI’s underscore weakness in UK’s economy

It was a bad start to the second quarter in the UK with the PMI data released over the week disappointed. Manufacturing PMI slipped into contraction for the first time since February 2013, falling to 49.2 in April from 50.7 in March. Construction PMI slowed to 52.0 in April from 54.2 in March while services PMI was down at 52.3 from 53.7 in March. The data released by Markit this week showed the toll on the UK’s economy in light of the June referendum on the EU membership. However analysts at Nomura note that Brexit wasn’t the only issue weighing on the UK’s economy noting that “There are warning signs that the UK economy is in a slowdown, with the BoE unlikely to turn hawkish anytime soon.”

The British pound managed to rise over the past weeks on improved sentiment and more importantly after the US President; Obama visited the UK and called to vote to stay in the EU. A similar sentiment was echoed by Japan Premier, Shinzo Abe who this week said that “friends of Britain” would be closely watching the outcome of the referendum and suggested that the UK should remain in the EU if it were to remain as an economic powerhouse.

RBA caps AUD rally, turns bearish

Economic data from Australia this week underlined the fact that the recent gains in AUD were short lived, which saw the Aussie trim its gains from last week on a weaker than expected quarterly inflation data. This week, the RBA cut rates by 25bps, bringing interest rate to 1.75%, which added to the Aussie’s weakness. Earlier today, the RBA’s Statement on Monetary Policy which is a quarterly forecast from the RBA saw the inflation forecasts being cut from 2 – 3 percent to 1 – 2 percent signaling the increased likelihood of further rate cuts from the central bank. Commenting on the new forecasts, analysts at ANZ said: “We now expect another 25bp cut, most likely in August, but the possibility of a cut as early as June shouldn’t be discounted.”

However, with the exception of downgrading inflation forecasts, GDP figures, and unemployment outlook were upbeat. The near-term economic growth outlook was modestly revised higher. GDP growth in Q1 is expected to be at the same pace as the previous quarter, and the RBA expects the current unemployment rate to remain steady into mid-2017. GDP was forecasted at 2.50% – 3.50% for 2016.

US nonfarm payrolls fail to impress

The monthly jobs report for the month of April was lackluster. Jobs rose a meager 160k against expectations of 200k while the unemployment rate remained unchanged at 5.0% for the second month in a row. The average hourly earnings were also flat at 0.30%, but on a yearly basis, hourly earnings gained 2.50%. The NFP report also saw revisions to the March job gains, which are now at 208k down from 215k while the average hourly earnings for March was revised down from 0.30% to 0.20%. Although still better, the April jobs report doesn’t offer any convincing clues for the Fed to justify a rate hike in June. Bipan Rai executive director of foreign exchange at Canadian Imperial Bank of Commerce noted that “the markets are trading knee-jerk off a weaker headline. The number was softer than expected, but the labor market in the US is still far from being a concern for the Fed

Economic events this week

  • US ISM manufacturing PMI 50.8 vs. 51.6
  • Australia building approvals m/m 3.70% vs. -1.80%
  • China Caixin Manufacturing PMI 49.4 vs. 49.8
  • RBA cuts cash rate to 1.75% from 2.0%
  • UK manufacturing PMI 49.2 vs. 51.3
  • New Zealand employment change q/q 1.20% vs. 0.60%
  • New Zealand unemployment rate 5.70% vs. 5.50%
  • UK construction PMI 52.0 vs. 54.1
  • US ADP Nonfarm Employment change156k vs. 205k
  • Canada trade balance -3.4billion vs. -1.2billion
  • US preliminary unit labor costs q/q 4.10% vs. 2.90%
  • US preliminary nonfarm productivity q/q -1.0% vs. -1.30%
  • US trade balance -40.4billion vs. -45.6billion
  • US ISM non-manufacturing PMI 55.7 vs. 54.9
  • US factor orders m/m 1.10% vs. 0.70%
  • Australia retail sales m/m 0.40% vs. 0.30%
  • Australia trade balance -2.16billion vs. -2.95billion
  • China Caixin services PMI 51.8 vs. 52.6
  • UK services PMI 52.3 vs. 53.6
  • Canada building permits -7.0% vs. -4.60%
  • US weekly unemployment claims 274k vs. 261k
  • RBA releases statement on monetary policy
  • Canada employment change m/m -2.1k vs. 0.2k
  • Canada unemployment rate 7.10% vs. 7.20%
  • US average hourly earnings m/m 0.30% vs. 0.30%
  • US unemployment rate 5.0% vs. 5.0%
  • US non-farm employment change 160k vs. 200k


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