Risk Aversion Continues – quiet before the storm?
US Stock markets closed lower for a second day in a row despite figures from the labour market and the services sector. The ADP report was 20% off the market consensus and reduces and this could lower the estimates for the Nonfarm Payrolls figure on Friday. PMI indices from the services sector were generally upbeat and showing expansion and the Factory Orders were quite positive as well at 1.1% vs. 0.6% expected for March. DOE Inventories showed a build in oil inventories, but oil managed a daily gain and has continued higher overnight. FX markets were mainly dominated by USD-strength.
In the Asian session, the risk-off theme continued on back of weak figures from the Chinese Composite PMI, which was below expectations but still above 50, indicating expansion in the sector. Australian Retail Sales, New Home Sales and Trade Balance figures showed improvement, which has made the Aussie take back some of the losses incurred from the RBA surprise rate cut earlier in the week. AUDUSD is still looking fragile and we could see further weakness below support at the 38.2% Fibo retracement in the 2016 wave opening up for a test of March lows at 0.7415
Today, we have a pretty quiet session when it comes to macro releases and we expect markets to be fairly range bound ahead of tomorrow’s key event – the US labour market report. From the UK, the April PMI Services index came out at 52.3 vs. 53.5 expected, confirming that the UK economy is slowing, and later in the day, US jobless claims could stir things up a bit should they deviate from expectations.
On the monetary side, we a few Fed speakers hitting the wires in the afternoon. St. Louis Fed President and FOMC voter Bullard could trigger some USD-appreciation as he has been quite hawkish recently and voiced that the US economy is stable enough for a near-term rate hike. Dallas Fed President Kaplan will also be on air, but we don’t expect anything major impact on that note.
From the EM, we have a few rate announcements from EM markets, namely Czech Republic, Romania and Mexico, but nothing major is expected.
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