AUS GDP Surprises Forecasts and Shows Growth in 1st Quarter
Australia's economy expanded in the 1st quarter, beating expectations of a decline. That means Australia has avoided falling into a technical definition of a recession as the country only saw negative growth for one quarter. GDP was up 0.4% compared to the 4th quarter as exports and consumer spending helped buttress a decline in business spending. The moves by the central bank, which reduced rates aggressively following the financial crisis last Autumn, and a fiscal stimulus plan by the government mitigated the worst of the recession by bringing down borrowing costs and putting more money in consumers' pockets.
AUD/JPY - Aussie Slides as Risk Aversion Swamps Markets
The Aussie rose higher, here against the Yen, in the wake of its GDP release, but those gains and then some pared down during the rest of today's session. After hitting a high near 79.50 near the beginning of European trading the pair slid more 300 pips, cutting into the gains seen this week. The slide was led by a sell off in European and US stocks which increased risk aversion. Investors and traders are starting to believe that the three month rally in equities has outpaced economic growth and earnings forecasts. That move away from risk appetite was apparent in many of the pairs today, and the Aussie slid a similar amount against the greenback.
GBP/USD - Pound Falls 400 Pips After Testing 1.6660
The Pound-Dollar pair, which has been rallied sharply the past three sessions, reversed some of that upmove in today's trading. The pair after hitting a long term resistance level at the 1.6660 level, fell almost 400 pips, finding support at 1.6240. That slide came despite better fundamental news from the UK, though stocks in London were pressured with the FTSE 100 declining 2%.
UK Consumer Confidence Up, Shop Prices Slow on the Year
Let's look at the UK news, with 2 releases coming out last evening. The Nationwide consumer confidence index rose to 53 for May on the back of better expectations for the future. The current conditions index however fell. The data suggests consumers seem optimistic about the tentative signs showing of a slowing in the pace of economic decline. The BRC shop price index saw annual inflation falling to 1.3% from 1.4% in April. This is the second consecutive month that inflation has slowed. On a month-on-month basis prices increased 0.5% in May after falling 0.5% in April.
UK Services PMI Moves Above 50 For the First Time in a Year
During the European session, the UK released its May Services PMI report which showed the index rising above 50 for the first time in a year to 51.7. It's another data point that suggests the UK economy has passed the worst of its recession. The housing market has seen prices stabilize somewhat and mortgage lending increase, while consumer confidence is rebounding as well. In addition the manufacturing and construction sector PMI's for May hit 12-month and 13-month highs respectively.
EUR Producer Prices Slide 1% in April
In Europe, producer prices fell for the ninth consecutive month in April, sliding 1% compared to March. That put the annual rate at -4.6%, which is the largest decline on record. The fall in prices was slightly more than anticipated and was driven by a 3% drop in energy prices on the month. It's not just energy bringing prices down. The core rate which strips out energy and construction costs, fell by 0.4% on the month and a record 2.4% on the year, showing underlying prices are being pressured as well.
EUR GDP Down on Weak Exports and Business Investment
GDP in the Euro-zone shrank by 2.5% in the 1st quarter matching the flash figure released May 15th. Today's release with its more detailed data showed the decline came as a result of a decrease household consumption, a sharp drop in exports, and a plunge in business investment. Consumption was down 0.5%, exports shrank 8.1%, and investment fell 4.2%. The fallout has been a scaling back in production which has led to layoffs. That has brought the unemployment rate to a 10-year high of 9.2%.
EUR/GBP - Euro Claws Back Recent Losses vs Pound
The Euro-Pound pair fell to a fresh 6-month low at the 0.8575 level, then rebounded to move above yesterday's high, finding resistance near 0.87. it will be interesting to note if the price action today reflects a retraction to the recent downmove in this pair, perhaps setting a second near term high from which to plot a downward sloping trendline, or if tomorrow will bring further risk aversion and a further move higher. Tomorrow morning both the ECB and BOE decide on interest rates which can have an impact on the markets.
US ADP Private Sector Employment Down 532K
In the US meanwhile, nonfarm private employment decreased by 532K in May, while April's figure was revised down by 54K. Though the figure is better compared to the first three months of the year when monthly losses averaged 691K, it reflects the weak state of the labor market in the US.
US ISM Non-Manufacturing Index Shows Small Improvement in May
The ISM non-manufacturing index rose to 44 for the May period, but that was only a slight increase compared to April's figure, and below the 45 reading expected by economists. The index measures the service sector, which amounts for a large amount of US economic activity. It has been below the 50 level, which separates contraction from expansion, since October.
US Factory Orders Climb 0.7% in April
Factory orders rose 0.7% in April, the second increase in the past three months, though March's figure was revised down to show a bigger decrease of 1.9%. The increase this month came on higher demand for automobiles, electrical equipment and construction machinery. Taking transportation goods, like cars and planes, out of the equation orders were up only 0.1%.
USD/JPY - Dollar Consolidates vs Yen Prior to Nonfarm
The Dollar-yen pair traded in a tight range today, note exceeding yesterday's high or low. Looking at price action for the past 5 sessions shows a triangle consolidation pattern. Stocks in the US were down today on the weak ADP data. The pair is likely consolidating prior to Friday's non-farm payroll release.
USD/CAD - Greenback Surges 300 Pips After Double-Top
The final pair we will look at is the US Dollar-Canadian Dollar pair which saw a strong 300 pip rally in today's trading as a result of the swings in sentiment. The pair formed a double bottom this week, as it moved above the 1.10 level and tested 1.11 which was support last week and may now act as resistance.
Upcoming Releases
Looking at upcoming releases, tonight, Japan will post its first quarter capital spending figures, while Australia posts its trade balance for April. Overnight, the Euro-zone will release retail sales.
Tomorrow morning the bank of England and the European Central Bank will give their interest rate decisions and accompanying statements. The US meanwhile, will reveal data on weekly jobless claims and its revised version of labor productivity and costs. The Canadian central bank will also conclude its interest rate meeting. Look for talk about quantitative easing from all three banks which will determine how the forex markets react.
