The beginning of the new trading week has started off echoing the well-entrenched narrative that has been driving price action in financial markets recently, as central banks deploy accommodative monetary policy measures in order to combat stagnant domestic growth. The People’s Bank of China slashed its benchmark lending and deposit rates for the second time in three months, lowering both by 25bps respectively in an effort to bolster a slumping property market and uncertain factory data. The interest rate cut from the PBoC reflects the balancing act the government is trying to skillfully carryout, hoping to keep economic growth ticking along at a pace quick enough to boost the quality of life for its citizens, but still adhering to the “new normal” of slower but better-quality growth the government has promised to deliver.
Corresponding with the monetary stimulus measures on behalf of the PBoC, the official manufacturing PMI reading for February inched up to 49.9, better than the median analyst forecast of 49.7, and a slight improvement in the pace of contraction compared to the 49.8 registered in January. The combination of the rate cut and the slight beat of manufacturing activity helped propel the Shanghai Comp to a gain of 0.78% on its session, yet the commodity-currency bloc has been unable to participate in the aforementioned developments, with the aussie on its back foot as commodity prices drag and market participants await the upcoming interest rate decision from the Reserve Bank of Australia set to be delivered overnight. With participants currently pricing in just over a 50/50 chance in favour of a further 25bps decline in the overnight cash rate, the aussie and kiwi have struggled to make any positive headway to begin the week.
Checking in on European developments, consumer prices in the common-currency bloc fell by less than forecast over the month February, decreasing by only 0.3% on an annualized basis, slower than the 0.4% drop that had been expected, and the 0.6% fall registered in January. The improvement in both price levels and purchasing manager activity has been spurred by enhancement in money supply and credit availability, though the constructive nature of the modest recovery will not be sufficient to make the ECB rethink the launching of its outright bond purchase program later this month. The less pessimistic consumer price levels have helped the euro recover from some of its losses against the greenback that were experienced in the wake of US Q4 GDP revisions that were not as sharp as economists had expected, and has pushed EURUSD back into the low 1.12s as we head into the North American cross.
As we get ready for the opening bell in North America, personal income and consumption figures for the US economy were just released for the month of January, with mixed results that are essentially a wash when compared to economists’ estimates. Personal income came in slightly lower than forecast with a 0.3% increase which matched the same pace of December, while consumption also missed forecasts and declined by 0.2% on a m/o/m basis, though an improvement from the 0.3% drop in December. While the income and consumption figures were lackluster to begin the year (though somewhat justified considering the robust consumption figures witnessed over the whole of Q4 2014), the Fed’s preferred measure of inflation, the core PCE reading, remained pinned at 1.3% on an annualized basis, and has helped the greenback slow the weight of the offer tone to begin the week. The Canadian dollar is essentially unchanged against its American counterpart, pivoting around the 1.25 handle with front-month WTI sub-$50/barrel and loonie traders anxiously awaiting tomorrow’s GDP numbers ahead of the Bank of Canada’s interest rate statement on Wednesday.
Further reading:
Fed favorite inflation measure remains at 1.3% y/y
EURUSD & GBPUSD Look Towards More Downside – Elliott Wave Analysis
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