Weekly Market Wrap: Dollar pares gains as ISM, NFP casts doubts

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The US dollar opened the week on a firm footing after last Friday’s speech from Janet Yellen sparked a bullish rally in the greenback. With rate hike expectations brought forward, for as early as the FOMC meeting in late September, the US dollar managed to maintain the momentum.

Monday was largely quiet. The UK markets were closed on account of bank holiday and economic data from Asia and Europe were quiet. In the US trading session, core PCE data and consumer spending and income were the only noteworthy reports. Data showed that US consumer spending continued to rise, but inflation was seen to be tame. The core PCE increased 1.60% on the year in July beating forecasts of 1.50%, but rising at the same pace as the previous month.

Earlier in the day, the markets were kept busy with speeches from BoJ’s Kuroda and Cleveland Fed President Mester. While Kuroda said that the BoJ would act without hesitation, Mester maintained the momentum noting that the case for a Fed rate hike continues to strengthen.

Sweden’s retail sales data was also released on Monday showing a second consecutive monthly decline in retail sales numbers.

Economic data on Tuesday saw Japan’s unemployment rate falling to a 21-year low. Despite a strong labor market, the lack of any wage pressures, however, continues to keep inflationary pressures at bay. Retail sales fell 0.20% on the month while household spending continued to declining underpinning any hopes of inflation budging from the current lows.

In Europe, Germany’s import prices were seen rising modestly higher, up 0.10% on the month. However, flash inflation estimates showed a flat print on a month over month basis, while Germany’s inflation remained steady at 0.40%. The HICP measure was, however, weaker, falling 0.10% from the month and rising only 0.30% from a year ago.

The US session saw the release of the Conference Board’s consumer confidence report which showed consumer sentiment rising to 101.1, beating forecasts of 97.20. The positive data continued to keep the momentum going on the US dollar. The euro fell to 1.1143 on the day while the yen weakened sharply sending USDJPY to a 4-week high.

Wednesday opened with the US ADP private payrolls report on the tap. Earlier in the day, Japan’s housing starts showed a modest improvement, rising to 0.80% in July but industrial production remained flat during the month after rising 2.30% in June. In Europe, the Eurozone flash CPI estimates showed inflation rising 0.20% in August indicating the lack of any inflationary pressures. The core CPI in the euro area was up 0.80% rising at a slower pace from July’s 0.90% increase. Energy prices weaker, on the whole, down 5.70% and dragging the CPI lower.

Stephen Brown, the European economist at Capital Economics, said that the weak inflation data boosts the case for further action from the ECB. “The unchanged headline inflation rate in August highlights the fact that price pressures in the eurozone remain weak and boosts the case for more monetary easing from the ECB,” Brown said.

In the US session, ADP payrolls came out better than expected as the data showed that private payrolls increased 177k in August. This was higher than the forecasts of 175k. July’s payroll numbers were also revised higher to show 194k compared to initial estimates of 179k. Ahu Yildirmaz, vice president and head of the ADP Research Institute said, “Job growth in August was stable and consistent with levels from previous months as consumer conditions improve.”

Wednesday afternoon also saw the release of the EIA’s weekly crude oil inventory report. The data showed a second week of build up in oil inventories which rose 2.3 million barrels, more than the forecast. Oil prices fell on the report alongside comments from Iran and Saudi Arabia’s oil ministers speaking on the issue of production and the upcoming meeting in Algeria.

The markets opened to a new trading month on Thursday to a busy day. Manufacturing PMI’s were the main theme of the day. In the UK, manufacturing PMI surprised after Augusts’ reading of the PMI index rose to 53.3 in August marking a 10-month high. The strong reversal in the manufacturing PMI surprised as forecasts pointed to a moderation in the index. Markit’s Rob Dobson said, “The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum. Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual.”

In the US the manufacturing report from ISM was however not that positive. Data showed a surprising decline in the manufacturing index as it fell to 49.4 in August to slip back into contraction. The ISM’s report showed a bleak picture as new orders, production and employment were all seen to be contracting.

The weak report put a halt on the US dollar’s rally as the greenback turned lower on the day and also helped to stall the declines in gold prices which were weaker for the most part of the week.

The dollar continued to trade weak on Friday with investors clued into the NFP report. Initial estimates showed a historical pattern for the August NFP reports to miss estimates initially due to lower participants in the BLS’ survey.

Friday’s data included consumer confidence data from Japan which increased surprisingly, beating estimates of 41.6 to rise to 42.0. In the UK, construction PMI data failed to live up to that of manufacturing. The data from Markit showed UK’s construction sector still remaining in contraction, albeit rising to 49.2 in August. It was better than July’s reading of 45.9 and beat estimates of 46.6.

The nonfarm payrolls report released by BLS showed that the US economy added 151k jobs lower than the forecast of 181k. However, July’s payrolls were revised higher to show 275k jobs, an increase of nearly 20k. The US unemployment rate was steady at 4.90%, missing forecasts of a dip to 4.80%. The average hourly earnings also increased at a slower pace rising 0.10% on the month slower than 0.30% increase in July. On a year over year basis, average wages increased only 2.40%, down from 2.70% revised in July.

Summary of Economic events this week

  • Australia HIA new home sales m/m -9.70% vs. 8.20% previously
  • Sweden retail sales m/m -0.90% vs. -0.70% previously
  • Sweden trade balance m/m 0.5bn vs. 0.6bn previously
  • US core PCE price index m/m 0.10% vs. 0.1%
  • US personal spending m/m 0.30% vs. 0.30%
  • US personal income m/m 0.40% vs. 0.40%
  • New Zealand building consents m/m -10.50% vs. 21.90% previously
  • Japan household spending y/y -0.50% vs. -1.30%
  • Japan unemployment rate 3.0% vs. 3.10%
  • Japan retail sales y/y -0.20% vs. -0.90%
  • Australia building approvals m/m 11.30% vs. 0.0%
  • German import prices m/m 0.10% vs. -0.10%
  • Spain flash CPI y/y -0.10% vs. -0.50%
  • UK Mortgage Approvals 61k vs. 63k
  • UK M4 money supply m/m 1.20% vs. 1.20%
  • Germany CPI m/m 0.0% vs. 0.10%; y/y 0.40% vs. 0.40%
  • Germany HICP m/m -0.10% vs. 0.10%; y/y 0.30% vs. 0.40%
  • Canada current account -19.9bn vs. -20.6bn
  • Canada RMPI m/m -2.70% vs. -1.30%; IPPI m/m 0.20% vs. -0.10%
  • US S&P HPI y/y 5.10% vs. 5.0%
  • US consumer confidence 101.1 vs. 97.20
  • Japan preliminary industrial production m/m 0.0% vs. 0.70%
  • New Zealand ANZ Business Confidence 15.5 vs. 16.0 previously
  • Australia private sector credit m/m 0.40% vs. 0.40%
  • Japan housing starts y/y 8.90% vs. 7.60%
  • Germany retail sales m/m 1.70% vs. 0.50%
  • UK, Nationwide HPI m/m 0.60% vs. -0.10%
  • French consumer spending m/m -0.20% vs. 0.30%
  • French preliminary CPI m/m 0.30% vs. 0.40%
  • Eurozone CPI y/y flash estimate 0.20% vs. 0.30%; Core CPI y/y flash estimate 0.80% vs. 0.90%
  • Eurozone unemployment rate 10.10% vs. 10.0%
  • ADP payrolls, 177k vs. 175k
  • Canada GDP m/m 0.60% vs. 0.50%; GDP y/y 1.10% vs. 1.10%
  • US pending home sales m/m 1.30% vs. 0.70%
  • Crude oil inventories 2.3 million vs. 1.1 million
  • New Zealand overseas trade index q/q -1.20% vs. -1.40%
  • Australia AIG Manufacturing Index 46.9 vs. 56.4 previously
  • Japan capital spending q/y 3.10% vs. 5.60%
  • Japan final manufacturing PMI 49.5 vs. 49.6
  • China manufacturing PMI 50.4 vs. 49.9
  • Australia private capital expenditure q/q -5.40% vs. -4.0%
  • Australia retail sales m/m 0.0% vs. 0.30%
  • China Caixin manufacturing PMI 50.0 vs. 50.1
  • Switzerland retail sales y/y -2.20% vs. -3.10%
  • Switzerland manufacturing PMI 51.0 vs. 50.5
  • French final manufacturing PMI 48.3 vs. 48.5
  • Germany final manufacturing PMI 53.6 vs. 53.6
  • Eurozone final manufacturing PMI 51.7 vs. 51.8
  • UK manufacturing PMI 53.3 vs. 49.1
  • Weekly unemployment claims 263k vs. 265k
  • Revised nonfarm productivity q/q -0.60% vs. -0.60%
  • Revised unit labor costs q/q 4.30% vs. 2.0%
  • Canada RBC manufacturing PMI 51.1 vs. 51.9 previously
  • US final manufacturing PMI 52.0 vs. 52.1
  • ISM manufacturing PMI 49.4 vs. 52.0
  • US construction spending m/m 0.0% vs. 0.60%
  • ISM manufacturing prices 53.0 vs. 54.5
  • Japan monetary base y/y 24.20% vs. 23.10%
  • Japan consumer confidence 42.0 vs. 41.6
  • UK construction PMI 49.2 vs. 46.6
  • Eurozone PPI m/m 0.10% vs. 0.10%
  • Canada trade balance -2.5bn vs. -3.2bn
  • Canada labor productivity q/q -0.30% vs. 0.20%
  • US average hourly earnings m/m 0.10% 0.20%
  • US nonfarm employment change 151k vs. 181k
  • US unemployment rate 4.90% vs. 4.80%
  • US trade balance -39.5bn vs. -43.0bn

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