Uncertainty about additional aid and/or restructuring in Greece remains a key contributing factor to this week’s shakeout. Even the Chinese reserve ratio hike is weighing on risk sentiment. Current price action is indicating that the worst of the liquidation is not yet over. This dollar correction seems to have more room on the upside, and thatÃ¢â‚¬â„¢s going to pressure precious metals even further. Your can just hear it, will all peripheries that require further assistance please form an orderly queue here, beside the exit sign. Below are some of the highlights of the week:
- European finance ministers did indeed meet to discuss the Greek adjustment program, but this was a search for ways to extend the program rather than force a restructuring. Most importantly, European Finance Minister council president Jean Claude Junker stressed that the EU did not discuss Greece leaving the Euro area and described the idea as “stupid.”
- An Irish senior minister commented that Ireland’s debt would likely have to be restructured within the next three-years. Negotiations would have to be through a process of negotiation with creditors, not unilaterally.
- Growth remains strong in Germany. Exports surged in Mar., up +7.3%, m/m from +2.8%, in Feb., (consensus +1.1%). Combined with slower imports growth (+3.1% Mar) drove the trade balance to a two-year high of EUR 18.9bn.
- Norwegian credit growth reaccelerated in Mar. (+6.3%)- the fastest rate since July 2009. It was driven by a significant extension of credit to non-financial enterprises (+3.7%) and household debt growth. Market now pricing a full rate for May and three hikes by year end by Norges Bank.
- Negotiations are supposedly underway to provide Greece with an additional package of nearly Ã¢â€šÂ¬60bn to allow Greece to stay out of the market through 2013. Greece was able to sell T-bills this week, but there is little prospect of longer-term financing in the market.
- Euro production data disappointed. French IP fell substantially in Mar. (-0.9%, m/m), but their first quarter performance as remains strong, up +1.8%. Italian IP was slightly softer than expected at +0.4% after a strong +1.5% m/m growth in Feb.
- Swedish IP was surprisingly strong in Mar., rising +0.9%. Feb. was also revised significantly higher, up +3.2% from a +1.1% initial estimate.
- Norwegian CPI accelerated sharply in April. Core and headline inflation rose +1.3% y/y, well above the Norges Bank expectations. Swiss inflation surprised on the downside, falling sharply to +0.3% y/y from +1.0% in Mar. More importantly, core inflation dipped into deflationary territory, at -0.1% y/y.
- BoE maintained its dovish stance in the latest inflation report. The statement seems to validate the market’s current dovish expectations, projecting inflation just below +2% at the two-year point based on the market rates and the statement suggests that a rate hike is more likely towards year-end.
- UK industrial production was weak in Mar., growing only +0.3% m/m, after a sharp -1.2% drop in Feb. and would suggest risk to the downside for the next first quarter GDP revision
- Euro-area GDP grew a solid +0.8% in the first quarter of the year, with Germany continuing to lead the way with its GDP now back to pre-crisis levels after expanding +1.5%. French GDP also surprised strong, up +1% versus a +0.6% consensus. Interestingly, Spain posted an above consensus +0.3% rate. Portugal and Greece continued to stay on the weaker side. The Data is consistent with ECB tightening in July.
- Swiss production and import prices inflation fell to +0.1%, y/y in Apr., suggesting the CHF strength is offsetting the rise in commodity prices.
- Greece remains a background concern for the EUR heading into Monday’s Euro-group meeting. Already officials have signaled that the meetings will not yield definitive results. IMF stated that Greece has not deviated Ã¢â‚¬Ëœtoo farÃ¢â‚¬â„¢ from the agreed program.
- After three consecutive months of gains, Canadian housing stats declined at a faster pace than expected last month (-3.2%). Most of the weakness was focused in multi-starts (-5.1%) as singles rebounded. This would suggest that the drag on growth for April will likely be more modest than the headline suggests.
- US inventories grew +1.1% and were mixed in the durable goods category, while there was widespread strength for the nondurable goods sector.
- US trade deficit widened in Mar. (+6% or -$48.18), more than expected, as soaring oil prices caused imports to outperform a record level of exports.
- Canadian surplus widened to +$627m from an upwardly revised +$356m. Exports rose by +3.5% fueled by energy products, while imports on the other hand rallied +3.2%. Trade with its largest partner, the US, narrowed to +$4.8b from $5b.
- US retail sales headline appears solid (+0.5%), but the details do reveal some weaknesses. Higher prices appear to be the reason for another consecutive gain in nominal retail sales last month.
- US PPI increase of +0.8% was very much in line with market expectations. The core (+0.3%) was marginally higher and the breakdown reads consistently with the up tick in inflationary pressures. ItÃ¢â‚¬â„¢s proof that the Fed cannot become complacent, even if the rise in energy prices is beginning to look like it has peaked.
- US weekly claims fell -44k to +434k and inline with market expectations. Despite falling back towards trend levels, it still remains elevated.
- The cost of living in the US rose last month (+0.4%), led by an increases in food and fuel costs that are starting to filter down to other goods and services.
- Confidence among US consumers climbed more than forecast in May, indicating employment growth is helping Americans cope with higher fuel and food costs. UoM preliminary consumer sentiment index rose to 72.4, a three-month high.
- Canadian new motor vehicles sales increased in Mar., up +2.0% to 135,261 units.
- In Australia, ANZ job advertisements for Apr. rose +1.0%, a touch slower than the +1.3% gain the previous month, but still strong.
- New Zealand credit card spending was up in Apr. (+1.7%). The Quotable Value house price index rose +1.2% in Apr., and has only partially reversed the -2.7% fall in prices in March. Expect market to cut pricing for RBNZ rate hikes.
- Australia’s trade balance rose to +1.7b surplus in Mar. from a downwardly revised -87m deficit in Feb. Increased exports of iron ore and coal largely drove the +9.2% rise in total exports, outpacing the +1.2% rise in imports. Expect the AUD to continue to benefit from the steady FX inflows.
- China’s trade surplus widened to +$11.4b in Apr. from +$0.14b in Mar. on the back of a +2.4%, rise in exports while imports fell -5.3%. Imports falling came largely from a -14.8% fall in imports from Japan.
- Chinese CPI inflation was +5.3% y/y in Apr. Food prices fell -0.4%, but the rise in services inflation offset that, keeping headline CPI elevated and inflation more broad based.
- RBNZ Governor Bollard again warned that the NZD is undesirably high. NZ house prices rose for the third consecutive month in Apr.(+1.1).
- PBoC hiked commercial banks’ reserve requirement ratio +50bp for a cumulative +500bp of hikes since the cycle began. The RRR for some large banks now stands at 21%.the Chinese policy focus remains on bringing down elevated inflation.
- Australia employment fell -22.1k in Apr. The -49.1k fall in full-time employment more than offsetting the +26.9k rebound in part-time employment. The unemployment rate was unchanged at 4.9% as the participation rate fell -0.2% to +65.6%.
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