Australia GDP, ECB and NFP – Markets this week (May 30 – June 03)

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OPEC leaders met in Vienna this week for the bi-annual meeting but despite the buzz, leaders of the oil producing nations failed to reach any conclusive agreement on ceiling production. Oil prices did not react much which also saw the weekly US crude oil inventories posting a lesser than expected draw-down on inventory. Elsewhere, economic data in the UK showed that manufacturing and construction continued to remain weak, and businesses noted that the impact due to the uncertainty surrounding the EU referendum outcome was having a significant effect on business. Services PMI was the only bright spot in the PMI’s this week.

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

Australian economy shows strong growth in Q1, 2016

The Australian economy accelerated in the first three months of the year, rising at a pace of 1.10% on a quarter over quarter basis. The pace of expansion was the strongest, following the previous quarter’s upward revised GDP growth rate of 0.70%. Data from the Australia Bureau of Statistics showed this week. The GDP print was above estimates, but was fairly expected after just a day earlier, the ABS’ quarterly trade balance data showed a narrowing deficit on increased exports. On an annualized basis, Australia GDP expanded at a pace of 3.10%, up from 2.90% in the previous quarter’s annualized growth.

Despite the pickup in the Australian economy, the country remains in what is being dubbed as income recession on flat wages and falling corporate profits. Australian real net national disposable income stayed weak, rising only 0.20% for the quarter and down 1.30% on a year over year basis.

Andrew Charlton economist from AlphaBeta says, “There is a lot of confusion about the Australian economy because production is strong but incomes are weak. That’s why we can simultaneously have record export growth with falling company profits, strong employment growth with low wages, and strong GDP growth with a crippled budget deficit.”

For the moment, however, with the better than expected data coming out, the Reserve Bank of Australia which is set to meet next week is seen to hold rates steady.

ECB moves to the sidelines

The European central bank met this week and left all policy rates unchanged at its meeting on June 2nd. In the statement, the ECB said that all QE purchases would run its course to the end of March 2017 and that they could be extended if the central bank found it to be necessary. The ECB announced the previous policy decisions including the corporate sector bond purchases and TLTRO-II operations would start from June 8th and 22nd respectively. The staff economic projections were also released at the ECB’s meeting. The central bank upgraded its GDP and inflation projections higher but only by a modest margin. According to the ECB, inflation is expected to average near 0.20% in 2016, up from previous estimates of 0.10%.

The markets were mostly muted after the ECB’s press conference. Elwin de Groot, the senior markets economist at Rabobank, said, “[The ECB] goes back to these relatively modest or subdued projections for growth and inflation as they roll out a significant easing package. More and more the market is thinking all these policy measures are not effective, or perhaps even counterproductive.”

May jobs report disappoints! 38k vs. 160k

The US labor department released the monthly payrolls report for the month of May, which disappointed by a big margin. The data showed that the US economy added only 38k jobs, one of the slowest paces since 2010. Economists were expecting to see a print near 160k. The jobs report also showed strong downside revisions for the previous two months. In effect in March and April, jobs were down by a combined 59k. The US unemployment rate, however, fell to 4.70%, the lowest since November 2007. But the slip in the unemployment rate came with the participation rate falling to 62.60% from 62.80%. The average hourly earnings data was muted, rising 0.20% on the month as expected, with previous month revised to 0.40% from 0.30% previously. On a year over year basis, the average hourly earnings were unchanged, rising 2.50%.

The US dollar fell sharply on the release with investors already starting to scale back their bets of a June rate hike.

Economic events this week

  • Japan retail sales y/y -0.80% vs. -1.20%
  • Australia company operating profits q/q -4.70% vs. 0.50%
  • Germany preliminary CPI m/m 0.30% vs. 0.30%
  • Australia building approvals m/m 3.0% vs. -3.10%
  • Australia current account -20.8bn vs. -19.3bn
  • Germany retail sales m/m -0.90% vs. 1.0%
  • Eurozone flash CPI y/y -0.10% vs. -0.10%; core CPI y/y 0.80% vs. 0.80%
  • Canada GDP m/m -0.20% vs. -0.10%
  • US Core PCE price index m/m 0.20% vs. 0.20%
  • US Chicago PMI 49.3 vs. 50.8
  • US CB consumer confidence 92.6 vs.96.1
  • China manufacturing PMI 50.1 vs. 50.0
  • China non-manufacturing PMI 53.1 vs. 53.5 previously
  • China Caixin manufacturing PMI 49.2 vs. 49.3
  • UK manufacturing PMI 50.1 vs. 49.6
  • UK net lending to individuals m/m 1.6bn vs. 5.3bn
  • US ISM manufacturing PMI 51.3 vs. 50.5
  • Australia retail sales m/m 0.20% vs. 0.30%
  • Australia trade balance -1.58bn vs. -2.11bn
  • UK construction PMI 51.2 vs. 51.9
  • OPEC meetings
  • ECB leaves minimum bid rate unchanged at 0%
  • US weekly unemployment claims 267k vs. 270k
  • ADP payrolls 173k vs. 174k
  • US weekly crude oil inventories -1.4mn vs.-2.7mn
  • China Caixin services PMI 51.2 vs. 52.0
  • UK services PMI 53.5 vs. 52.5
  • US monthly nonfarm payroll change 38k vs. 160k
  • US unemployment rate 4.70% vs. 4.90%
  • US average hourly earnings m/m 0.20% vs. 0.20%


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