European FX Outlook: Eurozone PMIs set to decelerate as growth remains

What you need to know before markets open

• The Bank of England Monetary Policy Committee member Michael Saunders refrained from direct policy indications but remained hawkish on the outlook for inflation naming domestic factors stemming from the labor market to drive inflation higher long-term.
• Comments from the ECB President Mario Draghi and the Bundesbank President Jens Weidmann indicate that both top ECB officials expect some deceleration in economic conditions in the Eurozone, but remain positive on growth outlook indicating the cautious approach to any changes at the upcoming ECB meeting.
• The Eurozone manufacturing and services PMIs are expected to decelerate further in April after the cluster of risk event to global trade and geopolitics hints the sentiment. For further detail read my Preview here.

Monday’s market moving events

• Japan’s manufacturing PMI is expected to decelerate to 52.6 in April.
• German composite PMI is forecast to decelerate by 0.1 points to 55.0 in April with manufacturing activity seen decelerating more than in services.
• The Eurozone composite PMI is anticipated to decelerate by 1 full point to 54.2 in April led by manufacturing activity in Germany. For further detail read my Preview here.
• Chicago Fed index is expected to fall to 0.41 in March from 0.88 in February.
• Canada’s wholesale sales are seen rising 0.7% m/m in February.
• The US existing home sales are expected to rise 1.3% m/m in March to 5.55 million.

Major market movers

• Sterling remained a loser of the day and the worst performer among majors for last week as Saunders comments failed to reverse its bearish slide to 1.4000, down 370 pips off its 22-months high reached three days earlier.
• With the Canadian inflation coming out below market expectations, the CAD fell 0.7% to 1.2770 against the US Dollar.
• Watch Euro reacting to both German and the Eurozone PMIs that are likely to decelerate in April. 

Friday’s macro summary

• German PPI increased 0.1% m/m in March while rising 1.9% y/y.
• The Bank of England Monetary Policy Committee member Michael Saunders (voting in favor of rate hike in March) said the UK no longer needs as much stimulus as before, due to little economic and slack and rising cost pressures.
• Saunders said the latest average earnings data were as expected, with inflation appears to be shifting away from external to domestic inflation drivers. Annual growth over next year or two will remain at 1.5%-2.0%, marginally above potential. Saunders expects labor market inflation pressures to be a bit greater than BOE forecast in February. Saunders said the significance of data pointing to soft Q1 growth is "questionable" due to weather and the history of upward revisions. 
• German Bundesbank President Jens Weidmann is scheduled to speak at the press conference at the International Monetary Fund's Spring Meeting, in Washington DC at 11:30 GMT
• Canada’s CPI accelerated to 2.3% y/y in March but together with the Bank of Canada core CPI rising by 1.3% y/y came out below expectations.
• Canada’s retail sales rose 0.4% m/m in March.
• ECB President Mario Draghi said positive developments in the Euro area are not independent of the global growth momentum and the open trade. Draghi said the Eurozone economy has been expanding robustly, with growth broad-based across countries and while ECB policymakers’ confidence in the inflation outlook has increased, remaining uncertainties still warrant patience, persistence, and prudence regarding monetary policy.
• Bundesbank President Jens Weidmann said he does not see any reason to assume that we're at the economic turning point, we're still experiencing the economic boom and therefore together with German Finance Minister Scholtz they don't think IMF suggestion for rainy day fund against crises makes sense.
• Chicago Federal Reserve Bank President Charles Evans said he would not react too strongly if inflation was 2.25% for a reasonable period of time in the US.
• European Commission’s economic confidence indicator unexpectedly edged higher to 0.4 in April.
• San Francisco Federal Reserve Bank President John Williams confirmed his previous monetary policy stance saying that Fed will continue gradual rate hikes over next couple years amid stronger growth stimulated by fiscal reform in the US. Williams also said that he is not worried about flat yield curve as long-term rates will move higher as Fed trims its balance sheet.