China Economic Data Weighs as Focus Shifts to the EUR and the Dollar

It’s risk off through the early part of the day. Economic data out of China suggests more doom and gloom as the National People’s Congress gets underway.
Bob Mason
Euro Coin Dollar Note

Earlier in the Day:

The economic calendar for the Asian session this morning was on the lighter side. Key stats were limited to current account figures out Australia and China’s service sector PMI.

Outside of the numbers, the RBA announced its March interest rate decision and released its rate statement.

Out of China, the National People’s Congress began this morning that will also influence through the day.

For the Aussie Dollar,

The current account deficit narrowed from A$108bn to A$7.2bn in the 4th quarter. The deficit was forecast to narrow to A$9.2bn. The figures were released by the ABS,

  • The narrowing was attributed to an increase in the exports of goods and services in the quarter.
  • Exports of goods and services increased by A$3.676bn in the 4th quarter, while the imports of goods and services rose by A$1.015bn.
  • The net primary income deficit narrowed by A$818m to A$15.318bn in the quarter.

The Aussie Dollar moved from $0.70819 to $0.70674 upon release of the figures. The moves came ahead of the RBA’s monetary policy decision and rate statement release.

The RBA held rates unchanged at 1.5%, which was in line with market expectations. Of greater interest was the rate statement. Salient points from the RBA rate statement included:

  • The labor market remains strong and a further decline in unemployment is expected over the next couple of years.
  • An improving labor market should see a further lift in wage growth over time, though gradual.
  • Other indicators suggest growth slowed in the 2nd half of 2018. Central scenario for growth this year remains at around 3%.
  • Main domestic uncertainty continues to be the strength of household consumption. A pickup in household income is expected to support spending over the next year.
  • Demand for credit by investors in the housing sector has slowed noticeably. Growth in credit extended to owner-occupiers has also eased.
  • Inflation remains low and stable. The central scenario is for underlying inflation to be 2% this year and 2.25% by 2020.

The Aussie Dollar moved from $0.70779 to $0.70763 upon the announcement of the policy decision and the release of the rate statement. At the time of writing, the Aussie Dollar stood at $0.7077, down by 0.21% for the session. The lack of suggestion of a possible rate cut failed to prop up the Aussie after another set of weak stats out of China.

Out of China,

The services PMI fell from 53.6 to 51.1 in February. The forecast was for a rise to 53.8. According to the Markit survey,

  • Service sector activity was at its softest since October of last year.
  • A slower increase in new business weighed on the PMI. Service providers reported the least marked expansion of new orders since last October.
  • Service sector companies also reported that new export orders eased to a 5-month low.
  • In contrast to the manufacturing sector, service sector companies increased headcounts for a 5th consecutive month.
  • Backlogs fell at the quickest pace since September 2015. The decline contributed to the first fall in unfinished business at the composite level for 3-years.
  • Operating expenses were on the rise in February, though the rate of increase was modest.
  • Service providers increased output prices only marginally.

The Aussie Dollar moved from $0.70819 to $0.70674 upon release of the figures.

Of greater influence to risk sentiment through the day will be any updates from the National People’s Congress. Likely areas of focus will be trade, technology and plan to support domestic growth.

Elsewhere,

The Japanese Yen stood at ¥111.90, against the U.S Dollar, down by 0.13% for the session. The Kiwi Dollar tumbled by 0.38% to $0.6793 through the early part of the day.

Market risk aversion weighed through the Asian session. Concerns over the likely terms of a trade deal between the U.S and China weighed, following a pullback in the U.S equity markets on Monday.

Weak economic data out of China added to the doom and gloom in the early part of the day.

The Day Ahead:

For the EUR

It’s a busier day ahead on the data front. Key stats due out of the Eurozone include finalized February service sector PMI numbers out of France, Germany, and the Eurozone. Spain and Italy’s February services PMIs are also due out ahead of the finalized figures.

Later on in the morning, the Eurozone’s January retail sales figures are also scheduled for release. Following some impressive figures out of Germany and France expectations are for retail sales to rebound. While the EUR will likely make a move on the release, the EUR may struggle to hold onto any gains ahead of Thursday’s ECB policy decision and press conference.

While generally not considered a material stat, this morning’s GDP numbers out of Italy will also be watched closely. Finalized figures could confirm a 2nd quarterly contraction.

Outside of the numbers, sentiment towards ECB policy has pinned the EUR back and will likely continue to do so ahead of Thursday’s press conference. Progress on trade talks and geopolitical risk across the region will also continue to be factors to consider.

The Italian coalition government sees the risk of a snap election on the rise. At a time when the EU’s 3rd largest economy is struggling, there is more for the ECB to be fretting over.

At the time of writing, the EUR down by 0.09% at $1.1330.

For the Pound

February service sector PMI figures will provide the Pound with direction later this morning. The manufacturing sector reported slower growth, with the construction sector contracting in February. Service sector activity will need to come in better than forecast for the Pound to avoid a pullback. The services sector is forecasted to contract in February.

Outside of the numbers, the BoE will release its FPC statement that is not expected to deliver too many surprises. Brexit discussions will remain the key driver barring initial responses to the stats and FPC statement.

At the time of writing, the Pound was down by 0.17% to $1.3158.

Across the Pond

The ISM non-Manufacturing PMI, scheduled for release later today, will provide direction. Forecasts are Dollar positive, though much will depend on risk sentiment through the day and, in particular, chatter from Capitol Hill.

February’s finalized Markit Service sector PMI,  by contrast, will unlikely influence. The Markit PMI will precede the ISM numbers.

December new home sales, which are scheduled for release alongside the ISM numbers, are forecasted to be Dollar negative. The Dollar will likely show little reaction to the numbers. Recent mortgage application figures have pointed to a pickup in activity, which should ease near-term negative sentiment towards the sector.

At the time of writing, the Dollar Spot Index was up 0.16% to 96.682.

For the Loonie

It’s another quiet day on the data front. The Loonie is edging every close to tomorrow’s Bank of Canada monetary policy decision. Expectations are for the BoC to take a more dovish outlook on growth, which would see the Loonie come under pressure mid-week.

We would expect the API crude oil inventory numbers to have a limited impact on the Loonie ahead of Wednesday’s BoC meeting.

The Loonie was down 0.17% to C$1.3325, against the U.S Dollar, at the time of writing.

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