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US Open Preview – Euro continues recovery as Italy looks for early elections; BoC rate decision ahead
May 30, 2018 12:26 pmVideo
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Here are the latest developments in global markets:
Day ahead: Bank of Canada to stand pat on rates; German inflation in focus
The economic calendar will be busy in terms of data releases later in the day, while a rate decision in Canada and political conditions in Italy will be in the spotlight as well.
At 1200 GMT, Germany, the EU’s largest economy, will publish preliminary readings on inflation for the month of May and forecasts are for the numbers to show an improvement after remaining steady in the past two months. Particularly the headline consumer price index (CPI) is expected to climb from 1.6% to 2.0% y/y, reaching the highest level since February. The harmonized CPI, which is comparable to other EU countries, is seen higher as well, at 1.8% y/y compared to 1.4% in April. In case the data surprise to the upside, investors could turn more optimistic that Thursday’s Eurozone flash inflation figures could also rise, helping the euro to recover.
Yet the political turmoil in Italy could limit any potential gains in the common currency on fears the Italian President Sergio Mattarella could dissolve parliament and call for fresh elections as soon as July 29 in the next couple of days according to sources with knowledge. Recall that over the weekend, Mattarella rejected the choice for the minister of economy proposed by the populists parties, but it is being reported today that these anti-establishment parties, the Five-Star Movement and the League party, were pushing efforts again to form a government.
A few minutes later, at 1215 GMT, the ADP research institute in the US will release its national employment report for the month of May, two days before the government’s famous nonfarm payrolls come into light. The report regarding the US nonfarm private sector is expected to indicate a slowdown in the number of people being employed, with analysts projecting a rise of 190k jobs, less than the 204k increase seen in the previous month. The data could be a good indication of what investors could expect from the government’s nonfarm payrolls,which measures employment changes both in the private and public nonfarm sectors.
Staying in the US, the second estimates on Q1 GDP growth and PCE prices will attract attention at 1230 GMT, with analysts waiting for both measures to confirm their initial estimates: GDP growth to stand at 2.3% on an annualized basis and PCE prices to rise by 2.5% y/y. Traders will also keep a close eye at the Fed’s Beige book which states current economic conditions in 12 Fed districts at 1800 GMT.
Meanwhile in Canada, stats on producer prices and the current account will be available at 1230 GMT, but the Bank of Canada’s monetary policy meeting due at 1400 GMT will be the main headline of the day. Analysts anticipate the central bank to hold interest rates unchanged at 1.25% for the fifth time despite a strong labor market and inflation around the target. Factors such as uncertainties around NAFTA and US trade protectionism in general are likely to keep policymakers cautious, while households’ overloaded debt obligations could also remain a concern. Still, any hawkish messages out of the rate statement following the decision could increase chances for stimulus reduction later this year. Note that the markets are currently pricing in two rate hikes coming in July and December. No press conference or financial projections are scheduled for this meeting.
In oil markets, the American Petroleum Institute will give an insight on US crude stocks for the week ending May 25 at 2030 GMT.
Elsewhere, industrial production figures out of Japan will come under review at 2350 GMT, while early on Thursday, Chinese manufacturing PMI (0100 GMT), New Zealand’s ANZ business confidence (0100 GMT) and Australia’s capital expenditure readings (0130 GMT) will be released.
Any developments on the trade front will be closely watched during the day after China warned the US today it would retaliate if the US was looking to start a trade war. This followed yesterday’s announcements that Washington’s threats of imposing import tariffs on $50 billion Chinese products were still open. Note that the US Commerce Secretary, Wilbur Ross will fly to Beijing this week in an effort to increase US exports to China.
In other economic events, G7 finance and development ministers, as well as central bank governors will meet today on the theme of “investing in growth that works for everyone”. The meeting will end on June 2.
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