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As China Data Disappoints, the Focus Shifts to the EUR and GDP Numbers

Bob Mason
Economic data out of China set the tone early. How much of an impact has the trade war really had on both economies? Are we about to find out?

Earlier in the Day:

The economic calendar was on heavier side this morning. Key stats included Australia wage growth and consumer confidence figures and China industrial production, fixed asset investment and retail sales figures.

For the Aussie Dollar,

Consumer Sentiment

The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 0.6% to 101.3 in May. The Index had risen by 1.9% to 100.7 in April

According to the May report,

  • The family finances vs a year ago jumped by 6.3% to 85.3, with the increase was attributed to the latest Budget. In spite of the increase, the sub-index remained below the long-run average 89.4.
  • Conversely, the family finances next 12-months fell by 1.6% to 103.8. The decline came off the back of a tax-break driven 4.1% increase in April.
  • Sentiment towards the economic outlook was also mixed in May.
  • The economic conditions next 12-months sub-index increased by 2.3% to 104.2, which stood well above the average 90.9.
  • By contrast, the economic conditions next 5-years fell by 2.9% to 97.3.
  • On the consumer spending front, the time to buy a major household item index rose by just 0.3% to 115.8. The index continued to sit well below a long run average 127.3.
  • Supported by the positive sentiment towards the economy near-term, the unemployment expectations index fell by 5.1% to 120.9. The long-run average stood at 130.0 in May.
  • From the housing sector, the time to buy a dwelling sub-index fell by 3.8%, with the House Price Expectations Index sliding by 6.5% to 89.4. Both sub-indexes sat well below their long-run averages in May.

The Aussie Dollar moved from $0.69292 to $0.69280 upon release of the figures that preceded the wage growth numbers and stats out of China.

Wage Growth

Wages grew by 0.5% in the 1st quarter, coming up short of a forecasted 0.6%. Wages also grew by 0.5% in the 4th quarter.

According to figures released by the ABS,

  • Wages grew by 2.3% over the year. It was the 3rd consecutive quarter that wages grew at the same pace.
  • Through the year, private and public sector wages grew 2.3% and 2.4% respectively.
  • Support for wage growth came from Healthcare and social assistance and Education and training industries.
  • Quarter-on-quarter, private sector wage growth stood at 0.5%, while public sector wage growth stood at 0.4%.

The Aussie Dollar moved from $0.69322 to $0.69247 upon release of the figures that preceded the stats out of China.

Out of China,

Industrial production rose by 5.4% year-on-year, falling well short of a forecasted 6.5% increase. Industrial production had increased by 8.5% in March.

Retail sales also came in softer, rising by 7.2% versus a forecasted 8.6% increase and 8.7% rise in March.

Of less influence, but still noteworthy, was a weaker than expected rise in fixed asset investment. Fixed asset investments rose by 6.1%, which fell short of a forecasted 6.4% increase and a 6.3% increase in March.

The Aussie Dollar moved from $0.69322 to $0.69264 upon release of the figures. At the time of writing, the Aussie Dollar was down 0.29% to $0.6924.

Elsewhere,

At the time of writing, the Kiwi Dollar was down 0.17% to $0.6565, while the Japanese Yen was up by 0.02% to ¥109.59 against the U.S Dollar

Disappointing economic data out of China set the tone in the early part of the day.

The Day Ahead:

For the EUR,

It’s a particularly busy day ahead. German and Eurozone 1st quarter GDP numbers and finalized French inflation figures are due out.

The focus will be on the 1st estimate GDP numbers due out of Germany and any revision to GDP figures due out of the Eurozone.

1st estimate GDP figures for the Eurozone had come in ahead of expectations at the end of May, providing much-needed support to the EUR.

Weak numbers and expect the EUR to take a step back, particularly if Germany’s GDP numbers are the root cause.

In the event of weaker than forecasted stats, expect the EUR to become more sensitive to any risk aversion on the day.

At the time of writing, the EUR was up 0.01% at $1.1205.

For the Pound,

There are no material stats due out of the UK today. The focus will remain on Brexit and UK Parliament. The Brexit Party have been upping the ante. Is it the end of two-party politics in the UK?

Both Theresa May and Opposition Party leader Corbyn have an incentive to deliver…

At the time of writing, the Pound was up 0.03% to $1.2909.

Across the Pond,

It’s a busy day ahead on the economic calendar. With the markets having had very little to go on in the early market of the week, we expect the Dollar to be responsive to the stats.

April retail sales and industrial production figures will have the greatest influence, though we can expect the NY Empire State Manufacturing Index to also be considered.

March business inventory numbers will unlikely have a material influence barring particularly disappointing numbers.

Outside of the stats, expect market risk sentiment and sentiment towards the U.S – China trade war to also influence.

The Greenback has struggled as concerns build over the U.S economic outlook. Soft retail sales figures could be the first real red flag that the bears have been in search of…

At the time of writing, the Dollar Spot Index was flat at 97.524.

For the Loonie,

After a quiet start to the week, April inflation figures are due out of Canada later today. Forecasts are for the annual rate of core inflation to accelerate from 1.6% to 1.8%. While not enough to force the BoC into a shift in policy, in line with or better than forecast would provide the Loonie with some upside.

Outside the numbers, however, Trump’s Twitter account could offset any positive figures, as the U.S – China trade war wages on.

Early on in the day, economic data out of China was of little help as industrial production slowed.

The Loonie was down 0.05% at C$1.3469, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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