Euro Weekly 4 May 2018
It’s been a challenging week for the pound; on Monday Bank of England chief economist Andy Haldane spoke yesterday about “Big Data” and its use now and in the future to help shape the Bank’s policy decisions. There was little data to help the pound this week, however, and the likelihood of the Bank of England holding the interest rates at 0.5% appears to have increased. Political uncertainty may have hindered the pound this week. Theresa May was swift to replace Home Secretary Amber Rudd with former investment banker Sajid Javid but there was no avoiding the political uncertainty of the local elections. There were few data positive enough to offset this. The UK manufacturing sector purchasing managers’ index was forecast to fall from 55.1 to 54.8, but the result for April came in nearly a point lower at 53.9 – and the March figure was downgraded to 54.9. There was some positive news from the construction sector; the PMI was forecast to improve from 47.0 to 50.5 in April, after the impact of the bad weather on the previous month. In fact, it reached 52.5 last month, two points higher than forecast and five points better than March. While this was good news, it did little to help the pound other than prevent it falling against a basket of currencies. The pound remained unchanged against the euro, the Swiss franc, the Canadian dollar and the South African rand and there was little movement against the US and NZ dollars. Towards the end of the week, the services sector PMI was forecast to show a similar rebound from the effects of the beast from the East, with a forecast 53.5 for April. The find figure came in 53.2, which was up from 51.9 but lower than both the forecast and the 54.2 result in February. Growth appears to be slowing in the service sector, showing the second weakest performance after the exceptionally cold March for over one and a half years.
The euro didn’t have the best week when it came to the data, either. The 0.6% monthly fall in German retail sales was followed by a downward tick, from 1.5% to 1.4% in Germany’s EU-standard Harmonised Index of Consumer Prices (HICP). Across Europe, core consumer prices fell unexpectedly 0.7% in April compared to a year ago, according to Eurostat. Analysts had expected a CPI mark of +0.9% for the month and the result highlighted the current soft patch that appears to have an impact across Euroland.
The US dollar is maintaining its recent rally due to expectations of an imminent rise in interest rates, although none was forthcoming this week. The US Personal Consumption Expenditure (PCE) inflation measure went up from 1.7% to 2.0%, bang in line with the Federal Reserve’s target, and is expected to rise further this year. The North American manufacturing PMI readings numbers were unchanged at 56.5. America’s more closely-watched ISM measure lost two points to 57.3. As expected, the Federal Open Market Committee made no change to US monetary policy. Twice the statement pointed out that the 2% inflation target is symmetric: the aim is not to keep inflation below 2% but to keep it centred on 2%. The FOMC was warning that it would not over-react to an inflation rate above 2%. That said, the tone of the statement remained in line with market expectations of two or maybe three more rate hikes this year. The dollar briefly dipped after the statement was released, then spiked, then returned to its original level for a net gain of a dozen ticks against the euro and the pound.
In Canada, the manufacturing PMI came in at 55.5 there is a forecast for a $2bn trade deficit – but this is dwarfed by the predicted $50bn gap predicted by the US. The Canadian economy expanded by 0.4% in February alone, which more than offset the 0.1% contraction seen in January and helped the Loonie to share first place with the Greenback, up by a cent and three quarters, after the figures were announced.
A mixed bag from down under; Australia’s manufacturing PMI came in almost five points lower at 58.3. New Zealand’s quarterly employment figures showed that unemployment ticked down to 4.4% with 0.6% more people in work. The news was vaguely helpful to the Kiwi but not sufficiently to differentiate it from the Aussie across the week.
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