Market recap

EUR fell on the weaker-than-expected Eurozone preliminary purchasing managers’ indices (PMIs). In particular, the German manufacturing PMI was up only slightly to 44.5 from 44.1, missing expectations that it would recover to 45.0. The overall Eurozone manufacturing PMI also missed expectations, rising less than expected, while the Eurozone service sector PMI fell more than expected. As a result, the overall Eurozone composite PMI fell to 51.3 from 51.6 instead of rising slightly as had been expected.

USD on the other hand rose after US retail sales beat expectations and jobless claims fell further to a new 50-year low. This good news apparently outweighed a disappointing Markit US manufacturing PMI (unchanged vs an expected rise) and very disappointing Markit service sector PMI (fell sharply). Furthermore, the Philadelphia Fed business survey also missed expectations, falling more than expected.

The point of note in the market was that global bond yields declined on the weaker-than-expected PMIs. The move included Treasuries, which fell 2-3.4bps across the curve. This raises the question, why did bond yields move in tandem in Europe and the US while EUR and USD diverged so much? It could be that FX is putting more weight on the retail sales figures, plus the growing expectations that China and the US will sign a trade deal sometime in May. Or it could be that there is simply more pessimism about the European economy than about the US economy. I suspect the latter and think that the dollar may be in for further gains (or more accurately the euro may be in for a period of losses).

 

Today’s market

With most centers on holiday today, the schedule is sparse. Trading will be thin as many trading desks are likely to be only partly staffed.

With most centers out today, the only major economic indicator will be US housing starts and building permits. Nor are these expected to be particularly exciting; while they’re expected to rise, in the case of starts it’s only mean reversion after the previous month’s large drop, while permits are forecast to be little changed. All told the market looks for numbers that are consistent with recent activity, suggesting neither a slowdown nor acceleration. That would be neutral for the dollar.

 

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Marshall Gittler

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