14 May Weekly Fundamentals outlook: Will USD rally continue?


Europe has turned more cautious as recent more sluggish data does not cooperate with the end of QE narrative, hence this is likely to be reflected in upcoming Eurozone Q1 GDP releases. For more market insights, you can read HotForex’s 14 May Weekly Fundamentals outlook.

14 May, HotForex – Stocks have regained their footing in early May as the plethora of worries which knocked global equities lower to start the year have faded. Concerns over a more aggressive Fed tightening stance, fears over rising price pressures, worries over a slowing in growth and possible recession, uncertainty over a trade war, not to mention geopolitics and the angst over N. Korea, have all eased, though unilateral reimposition of Iran sanctions by the U.S. have contributed to fresh trend highs on WTI crude above $71 bbl.

Yet investors have refocused on earnings, which have been stellar. Specifically, a less hawkish tone from the FOMC, softening in inflation data, and indications of strengthening in U.S. Q2 GDP growth to 3%, have added to the bullish tone on stocks, even as the dollar rally has paused to digest these developments and the cooler Fed outlook.

United States’ overall data should be positive

This week’s U.S. economic calendar will feature updates on retail sales, producer sentiment, housing starts, industrial production and business inventories. Overall the data should be positive, with retail activity estimated to extend the prior month’s gains, producer sentiment remaining strong, and housing starts still at a respectable pace. Industrial production growth should remain strong in Q2, following out-sized Q4 and Q1 gains. Inventories, should extend their rising trend in March as well, and may modestly subtract from GDP growth in Q2.

Canada is up for a busy Economic Calendar

In Canada CPI (Friday) highlights a busy calendar. Total CPI is expected to jump 0.5% in April (m/m, NSA) after the 0.3% gain in March, as gasoline prices surged. The CPI is seen accelerating to a 2.5% y/y pace in April from the 2.3% y/y clip in March. The BoC has expressed comfort with the pop in CPI, which has been above the 2.0% target mid-point since February, as the fall-off in temporary factors (previously restraining CPI) and minimum wage hikes provide what they see as a temporary boost. Manufacturing shipment values (Wednesday) are projected to gain 2.0% in March after the 1.9% gain in February. Retail sales (Friday) are seen growing 0.3% in March after the 0.4% rise in February. Bank of Canada Deputy Governor Schembri speaks (Wednesday) on “Reaching our Potential: Challenges and Opportunities. His speech is available on the BoC’s website at 12:00 ET.

Europe GDP Number and German ZEW

The ECB remains on course to phase out QE by the end of the year come what may, but this will only end the ongoing expansion of the central bank’s balance sheet; it still leaves officials with the task of scaling back support and returning policy back to normal. However, while rates are expected to be finally lifted next year, officials have turned cautious after a run of weak data. With that in mind the majority of this week’s data is too backward looking to really change the overall outlook. Against that background comments from ECB officials, including Draghi, Coeure, Praet (all Wednesday) and Constancio (Thursday) are all likely to sound cautiously optimistic on the growth outlook, while admitting ongoing uncertainties and risks.

The main focus on the data front is German ZEW investor confidence for May. Meanwhile, the first reading of German Q1 GDP (Tuesday) is likely to show a marked deceleration in the quarterly growth rate to just 0.3% q/q , versus 0.6% q/q in Q4 last year. This would pretty much mirror developments in other major Eurozone economies and leave the overall Eurozone GDP number (also Tuesday), on course to be confirmed at 0.4% q/q , unchanged from the preliminary reading and also sharply lower than in Q4. Again, there is a lot of noise in the data and the main question not just for the ECB is now whether this is due to temporary factors, or the sign of a broader downtrend in growth. Inflation numbers meanwhile are backward looking and Italian April HICP expected (Tuesday), to be confirmed at 0.6% y/y, the German HICP rate (Wednesday) at 1.4% y/y and the overall Eurozone rate (Wednesday) at 1.2% y/y. Core inflation fell back to just 0.7% y/y in April, but that was impacted by base effects with services price inflation falling back earlier than last year from the Easter spike. The calendar also has Eurozone trade (Thursday) and current account (Friday), but that will be overshadowed by the second GDP reading.

UK unemployment rate

Last week’s unchanged monetary policy decision from the BoE, the trimming of GDP and CPI forecasts, and the wary-but-still upbeat tone of MPC members, all met expectations, near enough. The calendar this week is quiet, highlighted by monthly BoE labour data (Tuesday). The unemployment rate is expected to hold steady at the multi-decade low of 4.2% . Average household income is expected to rise 2.6% y/y in the with-bonus figure and to a new cycle high rate of 2.9% y/y in the three months to March, which should keep BoE tightening expectations alive.

Japan National April CPI  

Tuesday brings the March tertiary industry index, which is penciled in at -0.3% versus the prior unchanged outcome. Preliminary Q1 GDP (Wednesday) is forecast at up 0.1% from the previous 1.6% increase. Revised March industrial production is due Wednesday as well. March machine orders (Thursday) are expected down 2.0% from the 2.1% previous rise. National April CPI (Friday) is forecast at up 0.6% y/y from up 1.1% overall, and up 0.7% y/y from 0.9% on a core basis.

China’s April retail sales 

April fixed investment (Tuesday) should be up 7.5% y/y as it was in March. April industrial production (Tuesday) is seen up 6.5% y.y from 6.0%, while April retail sales are penciled in at up 10.2% from 10.1%.

Reserve Bank of Australia’s meeting minutes  

The wage cost index (Wednesday) is expected to rise 0.6% in Q1 (q/q, sa) after the matching 0.6% gain in Q4. Employment (Thursday) is seen rising 10.0k in April after the 4.9k gain in March. The unemployment rate is projected at 5.5%, identical to March. The Reserve Bank of Australia’s minutes to the May meeting are due Tuesday. RBA Deputy Governor Debelle (Tuesday) will discuss “The Outlook for the Australian Economy” at the CFO Forum 2018 in Sydney. Deputy Governor Debelle (also Tuesday) speaks on “Interest Rate Benchmark Reform” at the ISDA forum, Hong Kong via video link.

Disclaimer

This article was written by Andria Pichidi, Market Analyst at HotForex. The provided article is a general marketing communication for information purposes only. It does not constitute an independent investment research. Nothing in this communication contains an investment advice or an investment recommendation. It also does not contain a solicitation for the purpose of buying or selling of any financial instrument.

All information provided gathered from reputable sources. Any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. We assume no liability for any loss arising from any investment made based on the information provided in this communication.

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