Eurozone GDP Numbers Could See the EUR Hit Reverse

Stats out of China continued to raise red flags for the global economy, while hopes of a trade agreement softened the blow. Focus shifts to the EUR.
Bob Mason
EUR

Economic data released through the Asian session this morning was on the heavier side. Key stats included December industrial production figures out of Japan, December private sector credit numbers out of Australia and January private sector PMI numbers out of China.

Outside of the stats, the markets also continued to respond to the overnight FOMC statement and the continued shift in the FED’s outlook on rates.

For the Japanese Yen, industrial production fell by just 0.1% in December, coming ahead of a forecasted 0.5% decline. In November, production slid by 1%.

Industries contributing to the decrease were:

  • Production machinery, chemicals (excl. inorganic, organic chemicals and medicine) and electronic parts and devices, in that order.

Industries contributing to an increase were:

  • General purpose and business-oriented machinery, motor vehicles and electrical machinery, and information and communication electronics equipment, in that order.

Looking ahead to January and February forecasts, January’s forecast was revised up from a 0.8% decline to a 0.1% decline, while February’s forecast for production came in at a 2.6% increase.

The Japanese Yen moved from ¥108.963 to ¥109.005 against the Dollar upon release of the figures, before rising to ¥108.89 at the time of writing, up 0.14% for the session.

For the Aussie Dollar, private sector credit rose by 0.2% in December, month-on-month, coming up short of a forecasted and November 0.3% increase. According to the figures released by the RBA,

  • Personal credit fell by 0.4%, following on from a 0.3% decline in November.
  • Business credit eased from 0.5% to 0.3%, while housing sector credit held steady at 0.3%.
  • Year-on-year, private sector credit rose by 4.3%, down from 4.8% in November.
  • The decline was attributed to a 2% fall in personal credit, following on from a 1.1% fall in November. Housing credit also saw softer growth, up by 4.7% compared with 6.3% in November.
  • On the plus side, business sector credit picked up, rising by 4.8% compared with 3.1% in November.

The Aussie Dollar moved from $0.72591 to $0.72490 upon release of the figures, which came ahead of the private sector PMI numbers out of China.

Out of China, January’s Manufacturing PMI came in at 49.5, which was better than a forecasted 49.3 and December 49.4. The non-manufacturing PMI came in at 54.7, which was far better than a forecasted 53.9 and December 53.8.

While the all-important manufacturing sector contracted for a 2nd consecutive month, adding to market jitters over the Chinese and global economy, the positive was the pickup in non-manufacturing sector activity.

It’s all about progress on trade talks now. Following the softest growth in almost 30 years, a continued contraction in manufacturing sector activity doesn’t bode well should trade talks collapse.

The Aussie Dollar moved from $0.72492 to $0.724544 upon release of the figures, before rising to $0.7261 at the time of writing, a gain of 0.18% for the session.

Elsewhere, the Kiwi Dollar was up by 0.10% to $0.6901, the gains coming off the back of the FOMC’s dovish tones and improved stats out of China that supported risk appetite early on.

The Day Ahead:

For the EUR, it’s a busy day ahead, with key stats scheduled for release including retail sales and unemployment figures out of Germany, prelim January inflation numbers out of France and Spain. 4th quarter GDP numbers and unemployment figures out of the Eurozone are also scheduled for release.

We will expect the focus to be on the numbers out of Germany and the Eurozone’s GDP figures. After the Dollar’s slide, the EUR could give up some of the upside should the GDP numbers come up short, concerns over growth and a dovish ECB having kept the EUR at bay of late.

At the time of writing, the EUR was up 0.13% to $1.1495.

For the Pound, it’s a quiet day on the economic calendar, with house price figures scheduled for release unlikely to have a material influence through the day.

Britain and the Pound are back to the drawing board, with an unwilling negotiator on the other side of the table.

Will the EU meet Britain halfway, or is there more Pound stress to come?

If EU member comments, following the parliamentary vote, are anything to go by then the prospects of a no deal departure are back on the table as is the chance of a 2nd referendum.

At the time of writing, the Pound was up 0.02% to $1.3119, with the markets holding onto hope that Britain will not walk out of the EU with no deal in hand.

Across the Pond, economic data scheduled for release include the weekly jobless claims figures and 4th quarter employment cost numbers, which are due out ahead of January’s Chicago PMI and new home sales numbers.

We can expect Dollar the Dollar to respond to the Chicago PMI and employment cost figures, though there are unlikely to be any fireworks following the FOMC’s dovish tones on Wednesday that tanked the Greenback.

Updates from the U.S – China trade talks and commentary from the Oval Office are also there to consider through the day.

At the time of writing, the Dollar Spot Index was down 0.02% to 95.320.

For the Loonie, there are finally some stats for the markets to consider. Data due out this afternoon includes December’s RMPI and GDP numbers. We can expect the stats to have a material influence on the Loonie, with some positive numbers needed to shift sentiment towards the BoC’s outlook on rates. Even solid figures may not be enough, however, with economic growth forecasts being lowered by the IMF and Central Banks a good enough reason to sit in a holding pattern.

The Loonie was up 0.08% to C$1.3138, against the U.S Dollar, at the time of writing, supported by a continued rise in crude oil prices and the softer Greenback.

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