It turned out to be a somewhat mixed day for global markets yesterday with European markets edging up to new six-month highs, while US markets slipped back. This weaker tone appears to have trickled through into Asia markets this morning and looks set to result in a lower European open this morning as we head into the long Easter break.
The decline in US stocks was led by health care stocks on concerns that proposals like universal Medicaid, currently being put forward by some politicians in Washington DC could destabilise the US health system, according to the CEO of UnitedHealth.
Yesterday’s China data showed that the Chinese economy expanded at 6.4%, unchanged from the end of last year, and Q4. This was in spite of Chinese imports declining three months in a row, which would appear to suggest that domestic demand is on the sluggish side. This has been borne out in areas like car sales which have been much weaker of late.
Certainly, the strong rebound in industrial production and retail sales would suggest that economic activity has improved in March, however dig a little deeper and most of the expansion has been down to state sponsored stimulus, with private sector investment still looking weak.
This doesn’t look in any way sustainable in the longer term, and with rising pork prices putting upward pressure on domestic prices any economic improvement could well merely stay within China, which in turn could well prompt Chinese authorities to ease up on further stimulus.
If the economic rebound that we saw yesterday in Chinese data has been able to ripple outside of China, then we should be able to see it in the form of a pickup in economic data with its trading partners.
Thus far we haven’t seen that any last month’s contractions in French and German manufacturing PMI’s can attest to that. In Germany the manufacturing sector cratered from 49.7 to 44.1, a seven year low, so any sort of pickup here is likely to be welcome when we get the latest flash manufacturing numbers for April later this morning.
It certainly doesn’t mean that manufacturing is out of the woods, though it would be hard for the numbers to be any worse. A modest improvement to 45.2 is expected, while there is also a chance that the March slowdown also was down to concerns over a no deal Brexit, which has now been deferred, so we could get a relief rally on that score as well. Services has been a little more robust with a modest slowdown expected from 55.4 to 55.
French manufacturing PMI for April is expected to improve to 50 from 49.7, while on the services front the picture hasn’t been that much brighter with an improvement from 49.1 to 49.8.
Back in the UK the latest March retail sales are expected to paint a rather bleak picture, as consumer spending stalled ahead of the March 29th Brexit deadline. Most estimates suggest we could see a decline of 0.3% from the rise of 0.4% seen in February, however there is a risk that this estimate could be understated and we could see a bigger decline.
This wouldn’t be a surprise, however before one reads too much into it we could see a large rebound in April retail sales, in the wake of the Brexit extension to October. The removal of that date saw airline and travel stocks surge in anticipation of consumers going booking their summer holidays in various popular destinations in Europe and elsewhere.
In light of this it’s probably sensible not to over interpret too much into one month’s number, even more so in light of the political pantomime that was unfolding in front of us for most of March.
It’s also a big day for US and Canadian retail sales for March, with rebounds expected for both.
In the US the consumer has been somewhat subdued in Q1, and with Q1 GDP numbers out next week it’s likely that a disappointing number here could well see downward revisions to next week’s number. Expectations are for a big rebound in the control group measure of 0.7%, after the 0.4% decline seen in February.
In Canada the consumer has been in hibernation it would seem for the last three months, despite a fairly robust jobs market and rising wages. Estimates for March are for a rise of 0.4% which would be the first positive number since the November numbers.
EURUSD – the failure to run up through the 1.1325/40 resistance area has seen the euro slip back, and while this level caps the risk remains of a return to the big support level back at the 1.1180 area, with a break targeting the 1.1000 level.
GBPUSD – still finding it difficult to rally after failing at the 1.3135 area earlier this week. The larger resistance level still sits up near 1.3170. The key support remains back at the 200-day MA and 1.2960 area. Below 1.2960 opens up the 1.2800 area.
EURGBP – has managed to push above the 0.8650/60 area with the potential for a move towards the 0.8720 level. Support comes in at the 0.8620 area.
USDJPY – trying to edge higher but needs to move beyond the 112.20 area to argue for further gains, towards 113.00. While below the 112.30 area the bias is for a move back below the 111.20 area towards the 110.20 level