Market Drivers May 22, 2014
Europe and Asia
AUD: HSBC 49.7 five-month high
EUR: Flash PMI Manufacturing 52.5 vs. 53.2
EUR: Flash PMI Services 53.5 vs. 53.0
GBP: UK 2nd Estimate GDP 1.3% vs. 0.4%
GBP: UK PSNB
North America
CAD: Retail Sales 8:30
USD: Unemployment 8:30
USD: Flash PMI 9:45
USD: Existing Home Sales 10:00
In Europe, the PMI readings came in as expected at 53.9; however, there was a large difference between Germany and France. German PMI Services rose to 56.4, indicating that that sector continues to boom. Manufacturing fell slightly but remained well above the contract/expand line at 52.5. In France however, conditions were far more bleak, as both services and manufacturing dipped below the 50 mark, returning to contraction once again. Conditions in the rest of Europe improved, suggesting that the recovery in the periphery remains on track.
The EZ PMI services report complicates matters a bit for ECB policymakers as it provides no clear signal of an economic slowdown, except for France. That may be the reason that BUBA President, Jens Weidmann, continues to warn that no decision on a rate cut has been made. The Germans remain reluctant participants in the program of further monetary easing as they prefer to let the EZ economy grow its way out of problems organically. However, given the mixed picture on the PMI front, chances of an ECB rate cut remain high.
Elsewhere in Europe, the UK 2nd revision of Q1 GDP came in as expected at 0.8%, which was a slight disappointment to cable bulls who were hoping for an upward surprise. Cable drifted towards the 1.6850 level as profit taking kicked in. The pair was further hurt by the high Public Sector Net Borrowing figures which came in at 9.6B versus the 3.6B expected. Overall, sterling remains the most fundamentally strong pair in the G-7 universe but for for the time being it may consolidate beneath the key 1.7000 figure.
Finally, in China the HSBC PMI reading suprised to the upside, coming within a whisker of the 50 boom/bust level at 49.7. The improvement in activity suggests that China may be stabilizing and that news helped lift the Aussie above 9250 after the pair survived an assault by shorts at the 9200 level. After having fallen from 9400, the Aussie may consolidate a bit at these levels. Sentiment regarding the pair still remains cautious though and could quickly turn negative if conditions in China begin to weaken again.
In North America, the calendar is relatively light with jobless claims and Existing Home Sales on the docket. The market is looking for an uptick in home sales to 4.71MM units versus the 4.59MM units from the period prior. A jump in housing numbers would be a welcome sign for dollar bulls as the slowdown in the sector has been one of the primary concerns that the Fed would delay any normalization of monetary policy. USD/JPY has generally traded well for most of the night, boosted by the 2% plus gain in the Nikkei. If the data prints positive, it may try to test the 102.00 barrier as the trading session progresses.