EU data galvanizes while China disheartens; eyes on Venezuela

A tale of two stories, rather it appears the two have reversed positions. Last month, optimism was growing that China was rebounding and Europe still remained weak. Early in Asia, the official Chinese factory gauge barely stayed in expansion territory. The headline came in at 50.1, down from 50.5 prior, and somewhat disheartening for many who expected an unchanged reading. The rest of the Chinese data was rather poor, with services PMI also missing expectations and the private sector readings confirming softness. In Europe, an onslaught of data delivered a rather upbeat tone. The euro area economy grew more than expected as Italy ended its technical recession, France and Spain showed improvements, the eurozone unemployment rate fell to the lowest level since 2008, and the German states are showing inflation.

EUR – On the verge of a major breakout

AUD- China still stabilizing

Oil – Saudis production talk and Venezuela’s Guaido’s uprising drive crude higher  

Stock – Google and Samsung take air out of Tech

Gold – Attempting to recapture $1,300 an oz

EUR

Start of the second quarter is looking promising for the euro zone area.  Economic growth is flashing signs of a recovery and inflation is coming back and if we get a dovish Fed on Wednesday, we could be talking about EUR/USD attempting to recapture 1.1300.  The rebound in Germany was expected, but if we continue to get strong signs from the periphery, we could see a major bottom in place for the euro.  Down the road, the bigger story might be the Italy exiting a technical recession, which could provide the ECB room to hold back on adding further stimulus.

AUD

The Australian dollar fell sharply against all of its major trading partners following the disappointing round of Chinese PMI readings.  While no one is expecting a hard landing due to the initial wave of Chinese stimulus, this emphasizes the need for a trade deal to be wrapped up so the PBOC can use their bazooka of stimulus.  Weakness in commodity currencies however were short-lived as trade optimism remains high as US negotiators arrive in Beijing.  US Trade Representative Lighthizer and Treasury Secretary Mnuchin meet with Chinese Vice Premier Liu He and hope to deliver meaningful progress that will keep hopes for a final agreement at the end of May.

Oil

Crude prices first caught a bid after Saudi Arabia refuted Trump’s comments that OPEC will pump more and as Venezuelan opposition leader Juan Guaido calls for an uprising with military support.  The banter between the Saudis and President Trump is somewhat expected, but the potential military uprising could be what is needed for oil to recover last week’s decline.  It is unclear if Guaido has a significant amount of military support, but even if it is a small number of troops, it indicates he is making progress.  The country is in meltdown mode and it could be a matter of time before Maduro is forced out or decides to flee.  Oil remains vulnerable on Veneuzuela, but once Guaido takes over, we could see oil selloff sharply.  If Guaido gets captured, oil could rise a few dollars.  West Texas Intermediate crude rose 1.3% to $64.35 a barrel .

Stocks

Technology stocks did not get any help from Google or Samsung, while GE, Merck and Pfizer delivered strong earnings results that took their respective shares higher.  Apple delivers their results after the close and traders will focus on services growth. At the beginning of the year, the iPhone maker delivered a warning that triggered the low for tech stocks. Wall Street is looking for clarity on iPhone weakness in China and if services business growth can continue to alleviate the falling phone sales. The consensus is for EPS to plummet to $2.37 and revenues to slide over 5% to $57 billion.

Gold

The precious metal is gaining momentum hear following the soft PMI readings from China.  A further deterioration however is not expected in China and the key to gold will likely be whether Fed delivers a strong dovish message.

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