The Bulls are out in Force. Brexit could be the only Curve Ball

The bulls are out in force as economic data out of China and Australia come off the back of positive updates from trade negotiations.
Bob Mason
Currencies Symbols

Earlier in the Day:

Economic data released in the Asian session this morning was on the lighter side, but of influence. Key stats included retail sales and trade data out of Australia. Later in the morning, the service sector PMI numbers out of China also provided support to riskier assets.

Outside of the numbers updates over progress on trade negotiations between the U.S and China also influenced.

For the Aussie Dollar,

Retail sales

Retail sales rose by 0.8% in February, coming in well ahead of a forecasted 0.2% increase. Sales rose by just 0.1% in January. According to figures released by the ABS,

  • Increases were recorded across most industries.
  • Sales in food retailing increased by 0.8% and by 3.5% in department stores. Household goods retailing reported a 1.1% increase in sales, with sales in clothing, footwear and personal accessories rising by 1.6%.
  • Other retailing and retail sales in cafes, restaurant and takeaway services were both unchanged, however.

The pickup in consumption is of particular significance when considering the RBA’s concerns over consumption. Falling house prices and household debt levels appear to have had little impact in February.

Trade Balance

In February, the trade surplus widened from A$4.549bn to A$4.801bn. Forecasts were for a narrowing to A$3.710bn. According to figures released by the ABS,

  • The balance on goods and services reached a surplus A$4.801bn, rising by A$450m from January.
  • Goods and services credits rose by A$77m to A$39.833bn.
  • The increase was attributed to:
    • The exports of non-rural goods rose by A$127m.
    • Offsetting the increase were declines in the exports of non-monetary gold, which fell by A$142m (7%) and rural goods that fell by A$44m (1%)
    • While the net exports of goods under merchanting held steady at A$10m, service credits rose by A$136m (2%).
  • Goods and services debits fell by A$374m (1%) in February. The decline was attributed to:
    • The imports of intermediate and other merchandise goods fell by A$443m (4%).
    • There were also declines in the import of capital goods, which fell by A$155m (2%) and non-monetary gold that fell by A$22m (5%).
    • There were increases in the import of consumption goods, which rose by A$12m.
    • Service debits rose by A$235m (3%).

In spite of concerns over the effects of the ongoing trade war between the U.S and China, the trade balance hit the larges surplus on record in February. It’s another boost for the Aussie Dollar and could see the RBA shift on its outlook on policy, though it’s going to take more than one month of data to support a shift.

The Aussie Dollar moved from $0.70586 to $0.70920 upon release of the figures.

Out of China,

March Service PMI figures out of China provided more support to risk appetite in the Asian session. The services PMI rose from 51.1 to 54.4, coming in well ahead of a forecasted increase to 52.3. According to the Markit Caixin survey,

  • New orders saw the largest monthly pickup in 14-months in March to support the largest monthly increase in activity since Jan-18.
  • New export sales rose at the 2nd strongest pace since Dec-17, supported by increased international activity.
  • Service providers reported a marginal increase in staffing levels in the month, in spite of a fall in backlogs.
  • Service sector optimism hit a 7-month high in March.

The Aussie Dollar moved from $0.70596 to $0.7101 upon release of the figures. At the time of writing, the Aussie Dollar was up 0.54% to $0.7109.


At the time of writing, the Kiwi Dollar stood at $0.6784, up by 0.38% for the session. Better than expected economic data out of Asia and updates on the U.S – China trade talks providing support early on in the day.

The Japanese Yen was down by 0.07% to ¥111.40 against the U.S Dollar, the pullback in the Yen coming off the back of improved risk sentiment.

The Day Ahead:

For the EUR

Finalized service sector PMI numbers out of France, Germany and the Eurozone will provide direction in the early part of the day. Ahead of the numbers, the onetime release of service sector numbers out of Spain and Italy will also influence.

The focus will likely be on the Eurozone’s finalized service sector PMI and composite figure.

Later on in the morning, Eurozone retail sales figures will also provide direction. Forecasts are for sales growth to slow in February to just 0.2%. Anything weaker and the EUR will face some selling pressure ahead of any recovery.

While the stats will provide some direction, risk sentiment will remain the key driver through the day. Positive progress on trade negotiations between the U.S and China and this morning’s positive stats provided support early on. Updates on Brexit progress will also need to be considered.

At the time of writing, the EUR was down 0.11% at $1.1201.

For the Pound

Service PMI figures out of the UK will provide direction for the Pound. A pickup in service sector activity will be positive for the Pound early on in the day.

Progress on Brexit, or lack of, will ultimately be the key driver, however. News of Theresa May reaching out to Opposition Party Corbyn to bring an end to the impasse provided support to the Pound early on.

Some may be calling the latest move a knife in the heart of the Conservative Party. But when considering the spectacular Tory Party implosion and Brexit rebellion, the move demonstrates May’s willingness to put country before party. The others will be saying that it’s about time a British politician did just that…

At the time of writing, the Pound was up 0.13% to $1.3145.

Across the Pond

March ADP employment change figures are due out ahead of March service sector PMI numbers.

Following last month’s dire nonfarm payroll figures, where just 20k jobs were added, the markets will be looking for solid numbers. While not always an accurate predictor of the official figures, anything weak would be a negative for risk appetite.

Later in the session, the Markit service sector PMI and market’s preferred ISM non-manufacturing PMI are due for release. The focus will be on the ISM figures, which are forecasted to reflect softer growth. Anything south of 57 would sound the alarm bells…

While we can expect the data to have an impact, risk sentiment will continue to be the key driver.

At the time of writing, the Dollar Spot Index was down 0.21% to 97.159, with a pickup in risk appetite easing back demand for the Greenback early on.

For the Loonie

It’s a quiet day on the economic calendar. The lack of stats will continue to leave risk sentiment as the key driver ahead of today’s EIA inventory numbers.

The Loonie was up 0.22% at C$1.3307, against the U.S Dollar, at the time of writing.

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