Economic data-wise, it was a relatively quiet day yesterday, with no major news. The only important pieces of data that came out were the US Personal Consumption Expenditure price indices and US personal spending numbers for February and March. During Asian morning today, China released manufacturing activity numbers, which came out as a disappointment for them. It should be a slightly more exciting day today, as we get the German and EU as a whole unemployment figures, together with EU’s GDP growth flash rate. Canada will also provide its MoM GDP number, but for the month of February. Apart from the economic data, US-China trade talks are on the agenda, as the US delegation travels to China today for further negotiations.
Yesterday, given that the day was somewhat of a quiet one, traders threw their attention on the US personal spending numbers for both, February and March. While the February figure came out two tenths lower than the previous, at +0.1%, the March number was the biggest surprise. The expectation was already on the high side, at +0.7%, but the real data showed a staggering +0.9%. This has been the largest increase since August 2009. The US stock indices took the good news very well and pushed higher after the data release. But only closer to the closing bell is when the indices started losing their gains. The Dow Jones Industrial Average closed the day almost unchanged. The S&P 500 and the Nasdaq 100 were the ones that rose a bit more, but still the gains were on the modest side. The S&P 500 managed to hit an all-time, beating the September of 2018 one by just a few points. In the end, the day still closed slightly below the September high.
The US indices will be in the spotlight this week, as investors will be keeping a close eye on the corporate earnings releases of companies, such as Apple, Qualcomm and General Electric. Also, let’s not forget the FOMC statement tomorrow and US employment numbers on Friday. All could force the equity markets to experience more volatility than usual.
The Chinese Official NBS Manufacturing PMI for the month of April was released today, which showed a much slower expansion of the sector. The previous number was not the best one, at 50.5, but the April’s figure was even lower, at 50.1, which is very close to being in contraction. Certainly, this is still better than the readings of the recent winter months, which were below 50. The Caixin Manufacturing index is also one important measure that investors monitor closely. After a decent reading in March, which was at 50.8, the index fell to 50.2 in April. When the March data came out, there were more hopes that China’s manufacturing could still pick up in April, as it did exactly a year ago.
A few reasons led to such a slide in the number. New orders and output grew at a lower pace, due to weaker overseas demand. Exports also are on a slight decline and the current trade wars are not helping the whole situation as well. Overall, we cannot say that investors should start hitting alarm bells because the numbers are a bit on the lower side. It is better to continue observing the future data, as things could still improve, if there is progress regarding Trade Wars. We have the US delegation visiting China today for another round of trade talks. The Chinese side will also visit the United States in the beginning of May to continue with the negotiations. It is still believed that during this round of talks, not much progress could be achieved, although both sides are willing to come up with solutions soon. Everyone around the world understands that these disputes are costing the two largest economies and its partners a lot of money, as some supply chains are disrupted. But to agree on a deal, this would be one part of the problem. Maintaining it could be a tricky task, as geopolitical tensions and mistrust are still present.
After hitting the level near 1.0237, last seen in in January 2017, USD/CHF retraced back down a bit, falling below the 1.0200 area again. That said, the rate is still trading above a short-term upside support line taken from the lowest point of March, but the pair had distanced itself from that upside line quite significantly, so the possibility of seeing a bit more retracement to the downside could be on the table. This is why we will take a somewhat bearish stance for now.
A drop below the 1.0185 support area could open the door for a further slide lower, towards the 1.0170 hurdle. That hurdle held the rate from moving lower after an increased selling activity on April 24th. There might be a chance to see a small rebound from that zone, but if the bears are still stronger, a push back down and a break of the 1.0170 obstacle, could lead USD/CHF to the 1.0149 barrier, marked by the intraday swing low of April 22nd.
On the other hand, a sharp reversal back up and a break above the 1.0216 area, could mean that the bulls are not yet willing to give up control over USD/CHF. More buyers could join in and drive the rate further up, potentially aiming for last week’s high, near the 1.0237 level. If this time, that zone is no match for the bulls, a break above could send the pair to the 1.0248 hurdle, marked by the high of January 11th, 2017.
Yesterday, Nasdaq 100 cash index got close, but failed to reach its new all-time high area, at 7860. The index then sold off and traveled towards its short-term upside support line drawn from the low of March 8th. Even though the price is still above that upside line, we will take a more cautious approach and remain neutral, as our oscillators are suggesting a slowing upside momentum on the 4-hour chart.
If the Nasdaq 100 cash index rebounds from the aforementioned upside line and pushes back above the 7810 hurdle, marked by the intraday swing low of yesterday, then there could still be hope to see a further move higher. The next resistance area in line could be near the all-time high, near the 7860 barrier, a break of which would place the index into an uncharted territory.
Alternatively, if the previously-mentioned upside line breaks and the price travels below the 7739 hurdle, marked by the low of April 26th, this could send Nasdaq 100 cash much lower, potentially targeting the 7703 obstacle, marked by the low of April 23rd. We may see a small rebound around there, but if sellers are still in control, another slide and break below the 7703 area might bring the index to the 7650 level, which is the low of April 22nd.
During the European session, Eurozone’s 1st estimate of Q1 GDP is due to be released and the forecast suggests that the economy to have accelerated somewhat, to +0.3% qoq from +0.2% in Q4 2018. Still, this could drive the yoy rate somewhat lower as the qoq rate of Q1 2018 that will drop out of the yearly calculation was +0.4%. Coming on top of the disappointing Euro-area PMIs for April, a potential miss of the GDP forecast could increase speculation for additional stimulus measures by the ECB, beyond the new round of TLTROs which is expected to begin in September, as well as for another delay in the timing of when interest rates could start rising.
Germany’s preliminary inflation data for April is coming out as well, three days ahead of the CPIs for the Eurozone as a whole. Both the German CPI and HICP rates are forecast to have risen to +1.5% yoy and +1.7% yoy from +1.3% and 1.4% respectively. This could raise speculation that Eurozone’s headline inflation rate, due out on Friday, may rise as well. Germany’s unemployment rate for April, and Eurozone’s unemployment rate for March are also scheduled to be released.
Later in the day, the US employment cost index for Q1 is expected to have accelerated to +0.8% qoq from +0.7%, while pending home sales for March are anticipated to have rebounded 1.0% mom, after falling by the same percentage in February. Canada’s monthly GDP for February is also coming out, and expectations are for a slowdown to +0.1% mom from +0.3% mom.
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