Friday April 13, 2018 - 15:15:01 GMT
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Recent Eurozone PMI Data Waving A Warning Flag For ECB
John M. Bland, MBA, co-founder, Global-View.com
Recent Eurozone PMI Data Turning Soft I have collected Monthly Survey of Purchasing Managers (PMI) for many years. The PMI data fall into the category of soft, as opposed to hard data, on broad trends in various sectors of economies as reported by Purchasing Managers. The two major sectors surveyed are the Manufacturing and Service sectors of key economies. I prefer the Manufacturing readings, even in the Service economies, because the Manufacturing sector tends to be more sensitive to changes in the business cycle.
My focus recently has been on the latest developments on the Eurozone, and on what the implications might be for the future monetary policy of the European Central Bank. The party line out of the ECB has remained extremely cautious. The current expectation of traders is that the ECB will bring its Quantitative Ease program to an end as of the end of September, but interest rates will not be hiked until 2019. Earlier this week, ECB Governor Nowotny indicated that he expected the central bank to raise rates in 2019, which was as broadly expected. This story surprised the news algos and triggered a bout of instability in the EURUSD. The reaction to his statement caused the central bank to indicate that Nowotny had been speaking for himself, not the central bank. However, it can be hard for markets to “unremember” such a statement. By week’s end the EURUSD was on the back foot again.
I bring up his statement because of recent developments in the Eurozone, German and French PMIs on the chart included above. While not even close to contraction levels yet, the PMIs data must be worrisome in Frankfurt and could slow to impact the “policy normalization” thrust of the ECB if they are confirmed in “hard data” reports.
Odds For June Rate Fed Rate Hike Now 82%. Following the Wednesday latest Fed Meeting Minutes, The odds for a June U.S. 25bp rate hike are a prohibitive 82%. If we take a June hike as a given, the odds of ONE more rate hike by year-end are now 84%. That would bring the total of 25bp hikes total this year to three. Odds on a fourth hike by year end are only about 4%. The Fed Funds odds calculation matters because there is real money at stake. If you don't agree with the implied forecasts, there are real people with real money willing to take the other side of your bet. This how a real market translates all the words into an actual trade. This view impacts how the USD trades.
GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium
Mon 16 Apr 2018
AA 12:30 US- Retail Sales
Tue 17 Apr 2018
AA 08:30 GB- Employment
A 09:00 DE- ZEW Survey
A 12:30 US- House Starts/Permits
A 13:15 US- Industrial Production
Wed 18 Apr 2018
AA 01:30 AU- Employment
AA 14:00 CA- BOC Decision
AA 14:30 GB- EIA Crude
Thu 19 Apr 2018
A 13:30 US- Weekly Jobless
A 14:00 US- Leading Indicators
Fri 20 Apr 2018
A 12:30 CA- CPI
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