Daily reviews

06.05.2019

Dollar mostly lower despite strong employment numbers, Fed on hold

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Dollar pairs were mixed last week in light of a number of economic data from the US including the monthly employment data and FOMC policy meeting. In general, however, the greenback was under pressure.

  • Dollar mostly lower on mixed US data
  • US employment rose decently but wages growth slows down
  • The Fed is worried by slow inflation
  • The Bank of England failed to impress the pound
  • Oil prices continue to retreat from tops
  • Gold loses ground despite weaker dollar

Asian equities

Asian markets were mostly lower during the last week as risk sentiment looked subdued and the trading activity was muted in general. After a sell-off on Wall Street, the regional indices declined as Powell disappointed traders on Wednesday by suggesting there would not be an interest-rate cut in the near future, and said lower inflation was “transitory.” Also last week, the latest round of U.S.-China trade talks ended in Beijing. Officials said progress had been made, but that obstacles still remain. Later, the U.S. Chamber of Commerce official had tempered expectations of a deal, saying China is unlikely to significantly reduce state subsidies in steel, aluminum and other sectors.

On Sunday, however, Trump surprises markets to the downside and sent global stocks lower across the board on Monday. President Trump said that he planned to increase tariffs on $200 billion of Chinese goods to 25% from 10% on Friday, as negotiations for a U.S.-China trade deal are set to resume on Wednesday. In turn, is was reported that China was considering cancelling this week's trade talks in Washington in light of Trump's comments that took Chinese officials by surprise.

US equities

U.S. equities posted mixed results during the week with the Federal Reserve decision, another portion of corporate earnings and key economic data. The Dow declined 0.14 percent, while the S&P 500 and the Nasdaq rose 0.20 percent and 0.22 percent, respectively. After a better-than-expected jobs report underscored the health of U.S. economy, the stocks rose decently on Friday. The Dow jumped 197.16 points to 26,504.95 and the S&P 500 rose 28.11 points to 2,945.63. The Nasdaq climbed 127.22 points to 8,164.00, a fresh record.

As for corporate results, Alphabet reported first-quarter revenue that missed investor expectations. The weaker revenue was mostly driven by the decelerating ad sales growth at Google. The stock lost nearly 7 percent for the week. Meanwhile, Apple delivered better-than-anticipated quarterly results and posted strong guidance for next quarter, sending the stock 3.4 percent higher on the week.

Currencies

Dollar pairs were mixed last week in light of a number of economic data from the US including the monthly employment data and FOMC policy meeting. In general, however, the greenback was under pressure. The U.S. economy added a robust 263,000 new hires in April while the unemployment rate fell to 3.6%, the lowest since 1969. The earlier report showed that ADP private-sector job growth surges by 275,000 last month. As for other news, U.S. consumer spending posted biggest gain since 2009, pending home sales jumped 3.8% in March amid a big dip in mortgage rates. US consumer confidence improved in April while S&P Case-Shiller home prices rose at a slower rate in February. ISM manufacturing PMI dropped to 52.8 versus 55.0 forecast, factory orders post largest increase in seven months, while ISM services index decelerated in April to lowest level in two years.

As for the FOMC meeting, the central bank held steady as expected but said inflation was running below its target. The regulator also reduced the interest it pays on excess reserves parked at the central bank as part of an effort to stop effective interest rates from breaking outside of its current target range. The central bank noted that recent developments show that economic activity “rose at a solid rate” but said that household spending and business fixed investment “slowed” in the first quarter. On employment, the committee repeated its March language describing the labor market as “strong” with job gains remaining “solid.” In a separate statement, Fed’s Clarida highlighted that the central bank can afford to be data dependent and the US economy is in a good shape. Williams said that there was a case for lower for longer rates while Bullard noted that interest rate policy is ‘a little tight’ right now.

EURUSD was marginally higher by the end of the week though the pair finished off the highs registered around 1.1260 and settled around the 1.12 handle. GBPUSD saw decent gains last week and closed around 1.3170. On Thursday, the BoE left its monetary policy untouched this month as it maintains its cautious approach to monetary policy as Brexit uncertainty continues to cloud the outlook for the UK economy. The pound hardly reacted to the decision. But on Friday, the pair rallied strongly despite the was no any clear catalyst. USDJPY declined last week to the 111.00 psychological support.

Commodities

Oil prices were down amid geopolitical tensions and sharp rise in US inventories, Brent crude oil for July delivery was down 1.80 percent for the week ending May 3. Brent has increased 36.40 percent so far this year. The United States recently ended six months of waivers for Iran's major oil buyers and demanded they stop purchases by May. The decision sent the prices higher but as the market digested the move by Trump, the barrel started to retreat in a corrective mode. Earlier in the week, the oil market was supported by political volatility in Venezuela but on Wednesday, prices declined as the market was affected by a sharp increase in U.S. crude stockpiles. U.S. commercial crude oil inventories surged by 9.9 million barrels from the previous week, which was much more than the market expectation of 1.485 million barrels. Moreover, crude oil production jumped to a new record-high of 12.3 million bpd for the week ending April 26. As a result, the record production, combined with inventories at their highest level in 19 months, weighed heavily on Brent on Thursday. The pressure also came from Saudi Arabia that said it will increase oil output if needed. As such, Brent slipped below the $70 handle though finished the week marginally below $71.

Gold prices were mostly lower during the week though the bullion managed to trim losses on Friday amid a widespread dollar weakness. The yellow metal failed to challenge the $1,290 level once again and saw a weekly low around $1,266 while finished just below the $1,270 figure. The demand for gold remains weak despite the lack of an outright risk on sentiment in the global financial markets. As long as the bullion remains below the $1,300 psychological level, the downside risks will persist in the short and medium term.