German economy expands in Q1
Today, the Euro zone economic docket has multiple major economic releases scheduled with a major focus on the final number of the Euro region’s growth figures which is anticipated to confirm the preliminary readings. Earlier, the first print of the GDP data indicated that the largest economy of the Euro zone expanded more than estimated for the first quarter. Separately, the final print of the German consumer price inflation data showed that the fall in consumer prices came in larger than previously estimated in April.
The just published UK construction output report indicated that the nation’s construction activity dropped more than expected in March. Elsewhere, retail sales figures in the US will attract significant market attention later in the day. Investors will also eye a survey by the University of Michigan indicating the prevailing consumer sentiment in the US.
Pound Sterling – UK Markets
Yesterday, the Pound rose to a nine-day high level against the shared currency, after the Bank of England (BoE) policymakers, in a widely expected move, voted unanimously to keep the key interest rate steady at a seven-year low level of 0.50%. Against the greenback, Sterling briefly advanced to a nine-day high but retreated after a few US Federal Reserve (Fed) officials hinted at the possibility of an interest rate increase in June. Post the monetary policy decision, the BoE Governor, Mark Carney, issued a stark warning about the economic risks if Britain votes to leave the European Union and went on to say that Britain stares at a possible technical recession if such a situation unfolds. Going a step further, the BoE slashed the UK’s 2016 growth forecast, calling attention to the gravity of the potential Brexit episode.
Recent data showed that the UK’s construction output declined further in March. Moving ahead, investors will closely watch Britain’s consumer price index, retail sales and the ILO unemployment rate data, all due next week, to assess the strength of the nation’s economy.
US Dollar – US Markets
The greenback traded higher against its major peers yesterday, as several US Fed officials gave the green light to continue the central bank’s attempt to normalise the interest rate policy. The Cleveland Fed President, Loretta Mester, indicated that the rise in US headline and core inflation was encouraging and consistent with the Fed’s view. Additionally, the Boston Fed President, Eric Rosengren, stated that the US economy appears to be strengthening after a sluggish first quarter, while the Kansas City Fed President, Esther George, warned that interest rates are too low for current economic conditions. On the data front, the number of Americans seeking unemployment benefits in early May surprisingly rose to hit a 14-month high, further adding to evidence that the nation’s labour market might be losing steam.
Later in the day, investors will look forward to the US retail sales and consumer sentiment data for April. Both of these figures are expected to show a robust increase, which would be consistent with views that the nation’s economy is recovering after a first quarter slump.
Euro – European Markets
The Euro is trading lower against the US Dollar this morning, continuing its downward trend from the previous session. Data released earlier during the day showed that German consumer prices declined as estimated in April. Further, consumer prices in Spain declined for the fourth consecutive month in April. However, compared to the previous month, Spain’s harmonised consumer prices moved up. Moreover, Germany’s economy grew more than expected at its fastest pace in two years during the first three months of 2016, mainly led by robust domestic consumption and brisk construction activity. Meanwhile, Italy’s gross domestic product (GDP) rose in line with market expectations in the first quarter of this year. Going ahead, investors await the Euro zone’s first quarter GDP figure, scheduled for release in some time, and is expected to hold steady.
Yesterday, the shared currency lost ground against the greenback, after the Euro zone's industrial production fell sharply for a second consecutive month. The monthly fall was broad-based with only energy output posting an increase.
Other Currencies – Highlights
The Kiwi Dollar extended its losses against the greenback this morning. Data released earlier in the session showed that New Zealand’s retail sales advanced at a less than expected pace during the first three months of this year. Although the laggard in the latest quarter was the specialised food retailing category, consumers spent largely on electronic goods. However, the Kiwi Dollar - US Dollar currency pair did not witness much change post the data release. Going ahead, with no major economic releases in New Zealand today, investor attention now shifts towards the US retail sales and consumer sentiment data, for further cues.
Earlier in the session, data showed that activity in New Zealand’s manufacturing sector perked up in April to its best level in three months. Among individual components, growth in production and new orders fuelled the robust reading, while deliveries turned back to expansion after slipping in the previous month. Additionally, the food price index in New Zealand recorded its first annual gain in seven months in April.