Euro Climbs against Dollar and Yen

May 4, 2017

Several themes were in play on Thursday.

  • A contentious French presidential candidate between centrist Macron and the far-to-the-right Le Pen was considered won by Macron, who already leads in polls. A victory for him in this Sunday’s run-off election would prevent Frexit.
  • Service sector purchasing manager survey results in April show Euroland growing at an encouragingly robust pace.
  • As often happens on Thursdays, the price of oil fell, touching a 6-month low, after Wednesday weekly U.S. inventory data showed the largest stockpiles in 21 months.
  • Yesterday’s FOMC statement preserved the status quo. There was no indication of when balance sheet normalization might begin, and the gradual nature of rate increases remains intact.
  • The fate of today’s U.S. House of Representatives’ vote on repealing Obamacare is in doubt. This is a lose-lose for the dollar. If Obamacare ends, there will be fear among those whose coverage might get dropped, depressing consumer sentiment. The inability to approve this bill, on the other hand, would be a big defeat for Trump and Ryan.
  • Japan’s markets remain shut for Golden Week. Today’s holiday is Greenery Day.
  • Fixed income yields posted increases overnight of 5 basis points in the case of German bunds, 2 bps for U.S. Treasuries, and a basis point on 10-year British gilts.

The dollar traded up 1.0% against the peso, 0.4% relative to the Australian dollar, 0.3% versus the kiwi, 0.2% against the yen and 0.1% vis-a-vis the loonie. The dollar fell 0.3% against the euro, 0.2% versus the Swiss franc and 0.1% relative to sterling. The yuan is steady.

The downtrend of metal prices was extended, with drops of 1.1% in gold and over 0.5% in copper.

Share prices in the Pacific Rim were mixed, with gains of 1.0% in South Korea, 0.8% in India and 0.4% in Indonesia but looses of 0.8% in Hong Kong, 0.4% in New Zealand, and 0.3% in China, Australia and Singapore.

Euroland’s composite and service-sector PMI readings in April of 56.4 and 56.6 were each a tad better than their preliminary estimate and both at 72-month peaks. While the German and French composite PMIs edged down a tad to 2-month lows, they indicated similar robust rates of expansion nonetheless. The Italian, Spanish and Irish composite PMIs climbed to 117-, 20-, and 3-month highs. Altogether the data suggest that the second quarter kicked off with GDP expanding around a non-annualized 0.7% quarter-on-quarter pace.

Euroland retail sales volume in March increased 0.3% on month and 2.3% on quarter, beating expectations.

The British services purchasing managers index climbed 0.8 points to a 4-month high of 55.8, resulting in a 3-month high for the U.K. composite PMI of 56.0. Both levels beat analyst expectations. Output price inflation accelerated to a 105-month high.

Singapore’s private PMI improved 0.4 points to a 5-month high of 56.2 in April, and the Lebanese private PMI rebounded from May’s 4-month low of 46.9 to a 2-month high of 47.5.

The biggest PMI disappointment of the day involved China, whose services index of 51.5 represented an 11-month low. With the previously reported 7-month low registered in manufacturing, the composite Chinese PMI sank to 51.2, a 10-month low.

India’s services and composite PMIs printed at 50.2 and 51.3 in April, which were 3- and 2-month lows, respectively.

Russia’s composite PMI settled back 1.0 point to a half-year low of 55.3. The services PMI was at 56.1, a 2-month low.

Two central banks reported unchanged monetary policies.

  • The Czech National Bank, which on April 6 had terminated its asymmetrical koruna cap, left its 2-week repo interest rate at 0.05%, its level since a reduction in November 2012.
  • The Bank of Norway maintained a 0.50% policy interest rate. That’s been the level since a 25-basis point cut in March of last year.

British M4 money growth accelerated to 6.6% in March, but new car sales in the U.K. recorded a big 19.8% on-year decline in April.

Swiss consumer sentiment in the three months to April dropped five points compared to the prior statement quarter, printing at negative eight.

The Canadian trade deficit in March narrowed more sharply than projected to less than C$ 150 million.

U.S. productivity fell more sharply than forecast last quarter, causing┬áthe rise in unit labor costs to accelerate more quickly than assumed. productivity dropped 0.6%, and unit labor costs jumped 3.0%. The U.S. goods and services trade deficit in March of $43.7 billion was very similar to February’s gap and not as big as predicted. New U.S. jobless insurance claims contracted 19K last week to an incredibly low 238K. Still to come: factory orders.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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