Morning Commentary: Signs of Life – Is a Bottoming at Hand?

Foreign Exchange - Morning Commentary

Signs of Life – Is a Bottoming at Hand?

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
For weeks and months now, we have been citing the fact that the EZ economy has been extraordinarily weak making the euro one of the weakest of the major currencies in 2019. Much of the EZ economic growth is overly dependent on trade and exports and with global trade volumes on the decline related to the imposition of U.S. tariffs and weak Chinese growth and demand, the EZ economies have been suffering dating back to H1 2018.
 
While it might be too early to sound the all-clear bell, today’s slew of EZ economic came in better than expected and was a welcome surprise. EZ Q1 GDP saw growth of 0.4% beating expectations and bringing the YoY growth rate to 1.2%. Both Spain and Italy saw growth rates better than forecast. German Unemployment fell by more than expected and Germany also saw slightly higher inflation. All of the data combined implies a potential bottoming for the EZ and potentially a less accommodative monetary policy by the ECB.
 
EZ interest rates are all higher today and the euro is up for the third day in a row. This is good news for the EZ and the euro as it has been on a weakening trend since the middle of April. The euro is now back into the broad consolidative pattern that has kept the euro contained going back to November 2018. Again, today’s EZ data was a welcome surprise but more positive data will be needed from Europe and China before the all-clear bell can be sounded with confidence and provide a backstop for better growth and a stronger euro. A reminder the FOMC on Wednesday and U.S Jobs Report on Friday.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Chinese Manufacturing PMI for April came in weaker than forecast at 50.2; consensus estimates were for an unchanged print from March at 50.5. Non-manufacturing PMI also came in below consensus estimates at 54.3 following a 54.8 print in March. Korean Industrial production missed badly falling by 2.8%. Asian equities were generally all weaker following this news and have rippled through European and U.S. equities also despite the improved EZ economic data.
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