It’s Risk On as Optimism Sweeps Across the Financial Markets

Earlier in the Day:

It was a busier day on the economic calendar through the Asian session this morning. April electronic card retail sales out of New Zealand and March Japanese spending numbers provided direction in the early hours.

On the monetary policy front, the RBA released its Statement on Monetary Policy that had a largely muted impact on the Aussie Dollar.

For the Kiwi Dollar,

Electronic card retail sales rose by 0.6% in April, falling short of a forecasted 0.8% increase. Card retail sales fell by a revised 0.2% in March.

According to NZStats:

• The increase in card spending coincided with the timing of Easter and the school holidays.
• Spending on hospitality rose by 0.6%, with spending on consumables rising by 0.5%.
• There was also a recovery in spending on apparel, which increased by 1.8%. Sales had fallen by 2.9% in March.
• Spending on fuel jumped by 2.8%, with spending on durables rising by 1.3%.

The Kiwi Dollar moved from $0.65888 to $0.65872 upon release of the figures. At the time of writing, the Kiwi Dollar was up 0.23% to $0.6606.

For the Japanese Yen,

Month-on-month, personal spending rose by 0.1% in March, falling short of a forecasted 0.5% increase. Spending had tumbled by 2% in February. Year-on-year, spending rose by 2.1%, which was better than a forecasted and February 1.7% increase.

According to year-on-year figures released by Ministry of Internal Affairs and Communications,

Weighing on overall household spending, year-on-year, were

• Spending on fuel, light & water charges slid by 5.4%. There were also falls in spending on medical care (-2.6%) and clothing & footwear (-1.6%).

Supporting household spending:

• Spending on housing surged by 9.4%, with spending on education jumping by 7.2%.
• There were also notable increases in spending on transportation & communication (+3.4%) and furniture & household utensils (+2.9%).

The Japanese Yen moved from ¥109.757 to ¥109.798 against the Dollar upon release of the figures. At the time of writing, the Japanese Yen was down 0.22% to ¥109.98 against the U.S Dollar

For the Aussie Dollar,

The RBA released its May Statement on Monetary Policy. Key from the statement was a downward revision to growth forecasts:

• The RBA noted that household consumption remained a major source of uncertainty for growth forecasts.
• The growth forecast for year-ended 2019 was cut from 3% to 2.75%. For year-ended June 2019, it was even more dire, with the growth forecast revised down from 2.5% to 1.75%.
• While business investment and public demand are expected to provide support to growth, dwelling investment and consumption growth were considered negatives.

The Aussie Dollar moved from $0.69985 to $0.70117 upon release of the Statement. At the time of writing, the Aussie Dollar was up 0.36% to $0.7014.

In spite of the stats and minutes released early in the day, market sentiment towards the U.S – China trade talks was key early on in the day. Optimism fueled support for riskier assets early in the day.

The Day Ahead:

For the EUR,

March trade figures out of Germany and French 1^st quarter nonfarm payrolls are due out later this morning.

Barring dire numbers out of France, the focus will Germany’s trade data. The markets will be looking for a turnaround in the Germany economy. The EU Commission is not so convinced for the current year, leading to the latest downward revision to growth for 2019.

Outside of the numbers, updates from the U.S – China trade talks will continue to remain key through the day.

At the time of writing, the EUR was up 0.16% at $1.1233.

For the Pound,

It’s a particularly busy day ahead. 1^st quarter business investment and GDP figures are due out of the UK. March industrial and manufacturing production and trade data are also due out later this morning. Later in the day, NIESR GDP estimates are also due out of the UK.

While we expect the GDP numbers to be the key driver, manufacturing production will also need to impress to support the Pound.

Outside of the figures, the markets will continue to monitor events in Parliament. While Theresa May looks to deliver a deal, the Opposition Party continues to support a 2^nd Referendum. Theresa May will need to hang on for the Pound to avoid a tumble.

At the time of writing, the Pound was flat at $1.3014.

Across the Pond,

April inflation figures are due out of the U.S this afternoon. Following FED Chair Powell’s views on inflation, any pickup up in the annual rate of core inflation beyond forecasts could reignite talk of a rate hike down the road.

Outside of the stats, a 2^nd day of U.S – China trade negotiations will remain the key driver through the session.

The markets will be expecting progress from 2-days of trade talks. Anything less and expect risk aversion to bite…

At the time of writing, the Dollar Spot Index was flat at 97.374.

For the Loonie,

March building permits and April employment figures are due out of Canada. The employment figures will be the key driver from the data front and will need to impress to offset the effects of disappointing trade figures released on Thursday.

Outside of the stats, the second day of U.S – China trade talks will need to be considered. Updates from talks will influence crude oil prices and the Loonie later in the day.

The Loonie was up 0.24% at C$1.3444, against the U.S Dollar, at the time of writing.