Unemployment Claims was the sole Positive in a Week Filled with Disappointing US Data.
U.S. retail sales disappointed with a 0.3 percent contraction when a slight expansion of 0.1 percent was expected. Removing volatile auto sales did not improve over estimates as core retail sales came in at 0.2 percent. The Producer Price Index (PPI) was lower at -0.1 percent. The key inflation data point used by the Fed the core Consumer Price Index (CPI) was also lower than forecasted at 0.1 percent putting not pressure on the Fed to raise rates in the short term. Consumer sentiment measured by the University of Michigan dropped to 89.7 to its lowest point in 8 months. Unemployment claims was the outlier in a mostly dollar negative week of economic releases. Jobless claims fell to 253,000 matching a 42 year low, but given the patience of the Fed and the collection of disappointments in other components of the economy the influence of employment data is shrinking as the Fed looks for signs of inflation to force their hand on monetary policy.
The Fed can afford to be cautious as other central banks face a steeper challenge. The European Central Bank (ECB) will announce its minimum bid rate on Thursday, April 21 at 7:45 am EDT. The ECB will hold rates unchanged after the massive QE push in March that did very little to depreciate the EUR. President Mario Draghi’s press conference will be the highlight as the market will be watching to see if he uses the same rhetoric that proved ineffective on March 10.
Oil prices have stabilized after the Organization of the Petroleum Exporting Countries (OPEC) and Russia announced a possible oil output freeze agreement. The summit in Doha will likely bring that production freeze agreement, but questions remain on how much impact it will have as global production continues to accumulate with very little growth in demand to offset it. Low energy prices have downgraded inflation expectations around the world and with production cuts out of the question for most producers it remains to be seen how sustainable current prices are at frozen, but still record high levels of production.
Risk appetite returned after encouraging news from China. The USD is having a mixed week against majors as it retreated versus commodity currencies and the pound, but regained some ground against safe havens (EUR, CHF and JPY).
The EUR/USD lost 0.985 percent in the past week. The pair closed the volatile week at 1.1289 after touching highs of 1.1465. The ECB has a major communication challenge when it addresses the market on Thursday. Previous attempts have been mixed at best, with horrific results in December and March. The creditability of the central bank given its lack of consistency is in jeopardy as it faces critics from inside the Union as well as outsiders.
ECB to Face Tough Crowd on Thursday
ECB President Mario Draghi has thrown the kitchen sink and still can’t manage to communicate with markets in a clear way. His efforts were deemed insufficient in December when he left something in the tank for a rainy day, and when markets imploded in January the he unleashed his trademark Bazooka in March. Yet the EUR continues to climb and puts further pressure on exporters who can’t catch a break and inflation expectations which at best are flat and in a worse case scenario see the European Union falling into deflation. He has demonstrated that he is not afraid to say whatever it takes or do whatever it takes to boost growth in Europe, but maybe he needs to be consistent and say and do at the same time to regain the market’s trust.
Doha Summit to Clear Doubts on Oil Production Going Forward
18 of the world’s largest producers will attend the Doha summit. Organization of the Petroleum Exporting Countries (OPEC) and non OPEC members will observe and in the case of most of the attendees are expected to sign an oil output freeze agreement with the goal of keeping oil prices at current levels and keep them from falling further. The output freeze talk has boosted the price of crude after a crashing start to 2016. Saudi Arabia and Russia, two of the largest global producers, started issuing back and forth statements that will culminate with an agreement in Doha.
There are questions on who will eventually sign. The biggest elephant in the room will be Iran. An OPEC member who will not participate given its oil exports are no longer bound by sanctions and has promised to enter the talks once it regains pre-sanction levels. Russia, Saudi Arabia, Qatar and Venezuela are the biggest names who have agreed tacitly and expect participants Algeria, Angola, Azerbaijan, Colombia, Ecuador, Indonesia, Iraq, Kazakhstan, Kuwait, Mexico, Nigeria, Oman and the United Arab Emirates to join.
Forex market events to watch this week:
Monday, April 18
9:30 pm AUD Monetary Policy Meeting Minutes
Tuesday, April 19
5:00 am EUR German ZEW Economic Sentiment
8:3am USD Building Permits
9:3am AUD RBA Gov Stevens Speaks
11:00 am CAD BOC Gov Poloz Speaks
Wednesday, April 20
4:30am GBP Average Earnings Index 3m/y
4:30am GBP Claimant Count Change
10:30am USD Crude Oil Inventories
Thursday, April 21
4:30am GBP Retail Sales m/m
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
Friday, April 22
8:30am CAD Core CPI m/m
8:30am CAD Core Retail Sales m/m