EUR/USD – Euro unchanged as eurozone inflation, manufacturing data as expected

EUR/USD is almost unchanged in the Friday session, continuing the lack of movement seen on Thursday. Currently, the pair is trading at 1.1376, up 0.05% on the day. There are a host of events on both sides of the pond, so the pair could show stronger activity in the North American session. German retail sales jumped 3.3%, but manufacturing PMI fell to 47.6, matching the forecast. Eurozone CPI Flash Estimate came in at 1.5%, matching the estimate. Core CPI Flash Estimate gained 1.0%, just shy of the forecast of 1.1%. In the U.S., the focus will be on consumer data, highlighted by the Core PCE Price Index and personal spending.

German numbers were a mix on Friday. Retail sales bounced back with a 3.3% gain in January, after a 4.3% decline in December. The manufacturing sector continues to struggle, as Manufacturing PMI fell below the 50-level for a second straight month, pointing to contraction. German and eurozone manufacturing has fallen off due to the global trade war, which has led to less demand for eurozone and German products. On the labor front, unemployment rolls fell by 21 thousand, crushing the estimate of -5 thousand. There was more good news as the eurozone unemployment rate dropped to 7.8% in January, down from 7.9% a month earlier.

The ECB has finally terminated its massive stimulus program, but any speculation that the bank will raise rates in the near term appears remote. The ECB has held rates at a flat 0.00% since March 2016, and there are two main factors weighing on a rate hike. First, the eurozone economy is grappling with a slowdown, and the German locomotive has also posted sluggish numbers. As well, inflation levels remain well shy of the ECB target of 2 percent. Unless the economic conditions show a sharp improvement, we may not see a rate hike before 2020.

The U.S. received a GDP report card on Thursday, and the results were good. Advance GDP, which was released a month late due to the government slowdown, showed a gain of 2.6% in Q4. Although this was weaker than the 3.4% gain in Q3, it was well above the estimate of 2.2%. The unexpectedly solid reading can be credited to strong consumer spending and business investment. It’s hard to argue that the U.S. economy is not performing well, with a strong expansion of 3.1% in 2018. Even with the GDP release, it’s unlikely that the Federal Reserve will veer from it dovish stance.

Aussie rebounds on Caixin PMI

Negativity bias overwhelms GDP and MSCI

EUR/USD Fundamentals

Friday (March 1)

  • 2:00 German Retail Sales. Estimate 1.9%. Actual 3.3%
  • 2:45 French Government Budget Balance. Estimate -17.3B
  • 3:15 Spanish Manufacturing PMI. Estimate 51.8. Actual 49.9
  • 3:45 Italian Manufacturing PMI. Estimate 47.7. Actual 47.1
  • 3:50 French Manufacturing PMI. Estimate 51.4. Actual 51.5
  • 3:55 German Final Manufacturing PMI. Estimate 47.6. Actual 47.6
  • 3:55 German Unemployment Change. Estimate -5K. Actual -21K
  • 4:00 Eurozone Final Manufacturing PMI. Estimate 49.2. Actual 49.3
  • 4:00 Italian Monthly Unemployment Rate. Estimate 10.4%. Actual 10.5%
  • 5:00 Eurozone CPI Flash Estimate. Estimate 1.5%. Actual 1.5%
  • 5:00 Eurozone Core CPI Flash Estimate. Estimate 1.1%. Actual 1.0%
  • 5:00 Eurozone Unemployment Rate. Estimate 7.9%. Actual 7.8%
  • 8:30 US Core PCE Price Index. Estimate 0.2%
  • 8:30 US Personal Spending. Estimate -0.2%
  • 8:30 (Dec. Data) US Personal Income. Estimate 0.5%
  • 8:30 US Personal Income. Estimate 0.3%
  • 9:45 US Final Manufacturing PMI. Estimate 53.7
  • 10:00 US ISM Manufacturing PMI. Estimate 55.6
  • 10:00 US UoM Consumer Sentiment. Estimate 95.8
  • 10:00 US ISM Manufacturing Prices. Estimate 51.6
  • 10:00 US Revised UoM Inflation Expectations
  • All Day – US Total Vehicle Sales. Estimate 16.8M

*All release times are EST

*Key events are in bold

EUR/USD for Friday, March 1, 2019

EUR/USD for March 1 at 5:40 EST

Open: 1.1371 High: 1.1375 Low: 1.1353 Close: 1.1376

EUR/USD Technical

EUR/USD was flat in the Asian session and is showing limited movement in European trade

  • 1.1300 is providing support
  • 1.1434 is the next resistance line
  • Current range: 1.1300 to 1.1434

Further levels in both directions:

  • Below: 1.1300, 1.1212, 1.1120 and 1.1046
  • Above: 1.1434, 1.1553 and 1.1685

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

USD/CAD Canadian Dollar Flat Awaiting Monthly GDP

The Canadian dollar is flat against the US dollar on Thursday. The loonie is trading at 1.3158 ahead of the monthly GDP release to be published on Friday morning. The currency stood its ground versus the greenback despite disappointing data. The Canadian current account deficit was wider than expected and raw material prices were weaker than expected at 3.8 percent.

The Bank of Canada (BoC) will be one of the highlights of next week, but it’s not expected to raise its benchmark rate above 1.75 percent. The Fed pausing its rate hike path and global growth concerns, give the BoC some room for patience.

usdcad Canadian dollar graph, February 28, 2019

Oil prices were mixed as the North American benchmark rose still impacted by a surprise drawdown in weekly inventories in the US.

The resurgence of the US dollar and the potential downside risks for oil prices will put pressure on the Canadian dollar next week. Only a hawkish assessment of the economy by Governor Poloz could relieve some of that pressure, but a soft GDP data point could take that off the table.

The US dollar is higher against most major pairs. The greenback has appreciated against the GBP, JPY, NZD and AUD, but is flat against the CAD and has depreciated against the CHF and the EUR.

Gold Lower on Strong US Data and Higher Safe Haven Appeal of Swiss Franc

Gold fell 0.44 percent on Thursday after a strong US GDP and with India and Pakistan tensions easing with the expected release of an Indian fighter pilot reducing the appetite for the metal as a safe haven. Investors looking to hedge exposures went looking instead to the Swiss franc.

The resurgence of the US dollar was in part thanks to the first estimate of growth in the fourth quarter. The Q4 GDP capped a 2.9 percent growth for the US in 2018. While there are some dark clouds setting on the horizon for the US, the data dependant Fed could bring back at least 1 rate hike this year.

Mixed Global Economic Data Begets Mixed Crude Benchmarks

WTI rose 0.42 percent while Brent is flat after yesterday’s surprise drawdown in US weekly crude inventories and the Chinese factory activity dropped to a 3-year low. Oil stocks fell 8.65 million barrels when the market was expecting a rise of 2.8 million. West Texas Intermediate is still down 0.16 percent on a weekly basis with crude lower with a 1.18 percent loss.

US President Trump’s tweet warning OPEC to relax caused a massive drop in both benchmark, but as economic data in the US has remained strong with baked in demand for energy forecasted higher the American benchmark is closer to rebounding.

West Texas Intermediate graph

Saudi Arabia responded to Trump and no immediate change is expected as OPEC+ will continue to limit production seeking to stabilize prices.

The producers that are part of the agreement have given no signs that they are ready to reassume normal production, but there are concerns on how long they can keep limiting their revenue.

Brent crude graph

Despite positive trade news as the US and China appear near an agreement to end their tariff feud, there are still lots of unknowns on what the deal will look like. Global growth estimates have been slashed as the two largest economies engaged in a trade war.

Supply disruptions will continue to boost prices, but once those are priced in there is little to suggest global energy demand is on the mend, putting more pressure on crude going forward.

Slow Brexit News Day Gives Way to Profit Taking

The pound lost 0.34 percent on Thursday, but so far this week the currency has advanced 1.63 percent on the back of higher chances of avoiding a no-deal Brexit. The lack of information brought about a bout of profit taking until there are more news to price into the currency.

European leaders have given strong hints that an extension could be in the cards, but as much as those comments have eased some concerns, they are merely delaying what now seems inevitable. All scenarios are still on the table, and they have the backing of certain groups that will fight to the end making the prospect of an orderly exit almost impossible.

Theresa May’s cabinet continues to lose members who disagree with her strategy putting into evidence the difficulty of reaching a compromise within the UK, let alone with the EU.

Swiss Franc Rises on Safe Haven Flows

The Swiss franc rose 0.41 percent as investors were looking to the currency as a safe haven. Soft Chinese factory activity, tensions between India and Pakistan, the collapse of the US-North Korea summit and the lack of progress on the US-China trade negotiations are amplifying market anxiety.

usdcad Canadian dollar graph, February 28, 2019

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mixed Global Economic Data Begets Mixed Crude Benchmarks

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Gold dips to 2-week low as GDP stronger than expected

Gold continues to lose ground on Thursday. In the North American session, the spot price for one ounce of gold is $1314.92, down 0.38% on the day. Gold prices have slipped 1.1% and are trading at their lowest levels since February 15. On the fundamental front, Advance GDP expanded 2.6% in the fourth quarter, above the estimate of 2.2%. Chicago PMI climbed to 64.7, easily beating the forecast of 57.3 points. Unemployment claims rose to 225 thousand, above the estimate of 221 thousand. On Friday, the U.S. will release Core PCE Price Index and UoM Consumer Sentiment.

The Federal Reserve has switched to dovish mode after raising rates four times in 2018. This stance was reiterated in Fed Chair Powell’s testimony on Capitol Hill on Tuesday and Wednesday. Powell preached patience with regard to changes in interest rate levels. The Fed chair stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and business investment have been soft. Powell was optimistic about the U.S. economy, but said that the lower global growth and uncertainty over trade was weighing on the economy. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 may be on hold until the second half of the year.

Investors remain confident that the U.S. and China will reach an agreement on trade, which would greatly reduce trade tensions which have hurt global economic growth. President Trump has said he will not impose punishing new tariffs on March 1, and there is even talk of a meeting between Trump and Chinese President Xi at the end of March if the sides reach an agreement. However, significant questions remain. With almost no news about the substance of the talks, it remains unclear if China will agree to substantial structural changes in trade, as demanded by the United States. Another question mark is whether the current set of tariffs will be completely removed if a deal is reached. Still, if the sides reach a deal, it could lower risk apprehension and make gold less attractive.

Aussie trips up as China PMIs weaken

You don’t bring a MIG-21 to a gunfight

XAU/USD Fundamentals

Monday (February 28)

  • 8:00 US FOMC Member Clarida Speaks
  • 8:30 US Advance GDP. Estimate 2.2%. Actual 2.6%
  • 8:30 US Advance GDP Price Index. Estimate 1.7%. Actual 1.8%
  • 8:30 US Unemployment Claims. Estimate 221K. Actual 225K
  • 9:45 US Chicago PMI. Estimate 57.3. Actual 64.7
  • 10:30 US Natural Gas Storage. Estimate -172B. Actual -166B
  • 20:15 US Fed Chair Powell Speaks

Friday (March 1)

  • 10:00 US Core PCE Price Index. Estimate 0.2%
  • 10:00 US UoM Consumer Sentiment. Estimate 95.8

*All release times are EST

*Key events are in bold

XAU/USD for Thursday, February 28, 2019

XAU/USD February 28 at 11:45 EST

Open: 1320.02 High: 1327.34 Low: 1313.08 Close: 1314.92

XAU/USD Technical

XAU/USD posted slight losses in the Asian session. The pair made considerable gains in European trade. The pair is down sharply in North American trade

  • 1306 is providing support
  • 1326 is the next resistance line
  • Current range: 1306 to 1326

Further levels in both directions:

  • Below: 1306, 1284 and 1261
  • Above: 1326, 1344, 1365 and 1392

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

GBP/USD – British pound rally takes pause as U.S GDP beats expectations

GBP/USD has paused on Thursday, after recording gains throughout the week. In the North American session, the pair is trading at 1.3296, down 0.10% on the day. In economic news, there are no major British events. In the U.S., Advance GDP expanded 2.6% in the fourth quarter, above the estimate of 2.2%. Chicago PMI climbed to 64.7, easily beating the forecast of 57.3 points. Unemployment claims rose to 225 thousand, above the estimate of 221 thousand. On Friday, the U.S. will release Core PCE Price Index and UoM Consumer Sentiment. On Friday, the U.K. releases Manufacturing PMI and Net Lending to Individuals. The U.S. will release Core PCE Price Index and UoM Consumer Sentiment.

With the clock ticking down towards Brexit Day on March 29, there is a flurry of activity in Westminster. Earlier in the week, Prime Minister May made headlines when she announced another vote on the government’s withdrawal agreement, which is scheduled for March 12. If lawmakers reject that proposal, they will vote the next day on two separate proposals – one on a no-deal Brexit, and the second on requesting the EU to extend Article 50 and delay Brexit past March 29. Investors are confident that this makes a no-deal scenario even more unlikely, which has resulted in gains of 2.0% for the pound this week. However, with plenty of turmoil and uncertainty around the Brexit withdrawal, we could see volatility from the pound in the days leading to the parliamentary votes.

The Federal Reserve’s new dovish stance was reinforced by Fed Chair Powell’s testimony on Capitol Hill on Tuesday and Wednesday. Powell preached patience with regard to changes in interest rate levels. The Fed chair stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and business investment have been soft. Powell was optimistic about the U.S. economy, but said that the lower global growth and uncertainty over trade was weighing on the economy. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 may be on hold until the second half of the year.

Aussie trips up as China PMIs weaken

You don’t bring a MIG-21 to a gunfight

GBP/USD Fundamentals

Thursday (February 28)

  • 1:58 British Nationwide HPI. Estimate -0.1%. Actual -0.1% 
  • 8:00 US FOMC Member Clarida Speaks
  • 8:30 US Advance GDP. Estimate 2.2%. Actual 2.6%
  • 8:30 US Advance GDP Price Index. Estimate 1.7%. Actual 1.8%
  • 8:30 US Unemployment Claims. Estimate 221K. Actual 225K
  • 9:45 US Chicago PMI. Estimate 57.3. Actual 64.7
  • 10:30 US Natural Gas Storage. Estimate -172B
  • 20:15 US Fed Chair Powell Speaks

Friday (March 1)

  • 4:30 British Manufacturing PMI. Estimate 52.0
  • 4:30 British Net Lending to Individuals. Estimate 4.7B
  • 8:30 US Core PCE Price Index. Estimate 0.2%
  • 8:30 US Personal Spending. Estimate -0.2%
  • 10:00 US ISM Manufacturing PMI. Estimate 55.6
  • 10:00 US UoM Consumer Sentiment. Estimate 95.8

*All release times are EST

*Key events are in bold

GBP/USD for Thursday, February 28, 2019

GBP/USD February 28 at 10:55 EST

Open: 1.3309 High: 1.3320 Low: 1.3264 Close: 1.3296

GBP/USD Technical

GBP/USD was flat in the Asian session. The pair posted showed limited movement in the European session and is flat in North American trade

  • 1.3258 is providing support
  • 1.3362 is the next resistance line
  • Current range: 1.3258 to 1.3362

Further levels in both directions:

  • Below: 1.3258, 1.3170, 1.3070 and 1.2910
  • Above: 1.3362, 1.3460 and 1.3350

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Brexit Risks Ahead

Risk appetite is again on the back burner after President Trump and N. Korea’s Kim failed to make any agreement at the Hanoi summit – the meet was cut short by Trump.

Cautious market sentiment is also being aided by uncertainty over the progress in Sion-U.S trade talks. U.S Trade Representative Lighthizer’s guarded comments this week that increased Chinese purchase of U.S goods is “not enough” to make a trade deal.

On the data front, China’s economic growth continued to slow, albeit the data was influenced by the Lunar New Year holiday. Chinese PMI, the first official gauge for this month, showed activity slumped further, below the 50 mark, that signifies contraction to 49.2, while new export orders also slid. While in Europe, inflation data for February showed small steps of improvement and should help the ECB to achieve its target later in the year.

Stateside, U.S Q4 GDP came in at +2.6%, better than the +2.2% forecasted by the street, but lower than the +3.4% growth seen in Q3. The miss in the headline is being blamed on the recent U.S government shutdown and the China-U.S trade war.

The reduced risks of a “no-deal” Brexit have helped lift the EUR and GBP this week, however, upside is likely to be relatively contained,” particularly given concerns over eurozone economic weakness and the Brexit final outcome.

Brexit timeline:

Vote on a revised deal (meaningful vote) – By Mar 12

May has promised to bring back a revised deal to parliament and hold a vote on whether to approve it by March 12.

If that fails, MPs will be offered two separate votes:

 One, on the following day, on whether MPs support a no-deal Brexit – so the UK would “only leave without a deal on 29 March if there is explicit consent in the House for that outcome”
 If that fails, then MPs will get a vote by 14 March on requesting an extension to the two-year Article 50 negotiation process to delay EU withdrawal beyond 29 March

PM May has indicated that she does not want to see Article 50 extended.

EU SUMMI – Mar 21-22

EU leaders are due to meet in Brussels. This could be an opportunity for an eleventh-hour deal, or it would be the last chance to agree an extension of the Article 50 negotiation period and delay Brexit to avoid no-deal disruption.

Last weekend – Mar 23-24

If a deal is seen as viable at the summit, officials could work through the weekend to nail down the details with a final deal – and a possible extension to June 30 conditional on British parliamentary approval – announced on Sunday, Mar 24-Monday, March 25.

Final week – Mar 25-29

If a deal could be clinched, then the British parliament could vote on it, possibly on March 26. The European Parliament could ratify the deal that week.

Exit Day – Mar 29?

If May does not get a deal approved by parliament by March 29, Britain faces a disorderly exit or may be forced to seek an extension of Article 50 to give more time to reach an agreement. It is not certain the EU would agree to this.

Geopolitical ‘hotspot’

Tensions between Pakistan and India are at their highest point in almost 50 years after Pakistan shot down an Indian military jet flying over the disputed Kashmir territory and India carrying out a pre-emptive strike on a terrorist training camp in Pakistan.

On the Economic Calendar, no releases are scheduled for this weekend.

Market concerns:

• U.K/Brexit fallout
• Sino/U.S – trade & tariffs
• China/Aussie – coal war
• Weaker China data
• Muller/Trump – AG Barr is set to announce the completion of the report
• OPEC, Saudis, Venezuela & Trump
• Geo-political concerns in Russia, Ukraine and France
• India/Pakistan – tension high amongst two nuclear nations
• ‘Twitter Trump’
• U.S debt ceiling worries
• Spanish snap elections expected to be full of surprises April 28

Next week: Reserve Bank of Australia (RBA) monetary policy announcement (Mar 4/5), AUD GDP (Mar 5), CAD Trade balance, Bank of Canada (BoC) rate announcement & AUD retail sales (Mar 6), European Central Bank (ECB) rate announcement (Mar 7), U.S non-farm payrolls (NFP) & CAD employment release (Mar 8)

Forex heatmap

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dollar mixed after better than expected GDP

US GDP – American Growth is Great

Korea – Summit ended early with no deal

China – Weak PMIs may not be as bad as you think

Oil – Unfazed by GDP data

Gold – Softer after US GDP cools

GDP

The US economy appears to be on solid footing after fourth quarter GDP cooled better than expected.  The fourth quarter reading for US GDP came in at 2.6%, better than the 2.2% forecast by analysts, but lower than the 3.4% growth seen in the third quarter.  The December effects from the government shutdown and trade war appear to have slightly brought down growth prospects and will lead many to believe the retail sales collapse in December will see a positive revision.

The US economy does not appear to be losing steam and this economic cycle is showing signs it is here to stay.  Fed rate cut expectations are likely to dwindle and we could see arguments return for the next move to be a rate hike.

The US dollar is slightly stronger against the Japanese yen and commodity currencies.  The yield on the 10-year Treasuries is higher by 2 basis points at 2.706%.  US equities are slightly lower in early trade.

Korea

President Trump walked out on Kim Jong Un after it become apparent North Korea wanted all the sanctions lifted for the removal of their main nuclear facility in Yongbyon.  Kim was blindsided at the summit with evidence they created additional secret nuclear sites.  The market reaction was negative to risk appetite, but hardly anyone thought something concrete would come from this trip.

What was disconcerting was the way the US handled the trip to Vietnam.  Surprising North Korea with evidence that would likely derail their negotiation strategy was unlikely to make them cave and probably should have been provided in advance.  The visual of Trump walking out of the second summit with Kim will likely raise concerns that Trump may use the same move with President Xi when they attempt to end the US-China trade war.

China

China’s factory activity gauge declined further in February to a 3-year low.  The effects of the Lunar New Year holiday definitely weighed on the data, but many analysts expected the data could have been much worse as factory workers took off a full week.  The key to a rebound will remain on a resolution with the US-China trade war.  Delaying the tariff increase is not good enough to solidify Chinese economic growth and a framework agreement is needed next month.

Oil

Crude prices remained stable after US economic growth did not cool as much as expected.  The key to oil remains the battle between President Trump and OPEC.  With crude imports to the US falling to a two-decade low and sanctions firmly in place on Iran and Venezuela, oil could remain supported until US production picks up in the warmer months.

Gold

Gold lost of all its gains after the US delivered an impressive fourth quarter GDP reading.  The de-escalation in tensions between India and Pakistan also provided some pressure on the yellow metal earlier in the session, but by no means should lead one to believe this risk event is off the table.  Gold will likely be supported on slower economic readings from China and Europe and concerns the trade war will intensify before we see a deal.  Yesterday, US Trade Representative Lighthizer’s cautious comments on trade progress served as a reminder a deal is not necessarily imminent.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya

Canada: Industrial product and raw materials price indexes

Prices for products sold by Canadian manufacturers, as measured by the Industrial Product Price Index (IPPI), declined 0.3% in January, driven primarily by lower prices for energy and petroleum products. Prices for raw materials purchased by Canadian manufacturers, as measured by the Raw Materials Price Index (RMPI), rose 3.8%, mainly due to higher prices for crude energy products.

Industrial Product Price Index, monthly change

The IPPI (-0.3%) was down for the third consecutive month in January, following a 0.8% decrease in December. Of the 21 major commodity groups, 12 were down, 8 were up and 1 was unchanged.

Energy and petroleum products (-1.8%) were largely responsible for the decrease in the IPPI in January. This decline was mainly due to lower prices for motor gasoline (-2.2%) and lubricants and other petroleum refinery products (-4.3%). The prices of light fuel oils (-1.7%) and diesel fuel (-1.5%) also contributed to the decline in this commodity group. The IPPI excluding energy and petroleum products edged down 0.1%.

Prices for chemicals and chemical products declined 1.0% following a 1.5% decrease in December. The downturn in this commodity group was mainly due to lower prices for petrochemicals (-8.7%). However, higher prices for other basic inorganic chemicals (+3.5%) partially offset this decline.

Prices for pulp and paper products (-1.2%) also declined compared with December, mainly because of lower prices for wood pulp (-2.9%).

Primary non-ferrous metal products declined 0.3%, primarily driven by lower prices for unwrought copper and copper alloys (-3.6%), unwrought aluminum and aluminum alloys (-3.2%), and other unwrought non-ferrous metals and non-ferrous metal alloys (-2.8%). However, this decline was moderated by higher prices for unwrought precious metals and precious metal alloys (+2.7%).

Conversely, the decline in the IPPI was moderated primarily by higher prices for meat, fish, and dairy products (+1.0%). Growth in this commodity group was driven by prices for processed meat products, other meats and animal by-products (+2.1%), fresh and frozen pork (+1.2%) and fresh and frozen beef and veal (+1.1%).

Some IPPI prices are reported in US dollars and converted to Canadian dollars using the average monthly exchange rate. Consequently, any change in the value of the Canadian dollar relative to the US dollar will affect the level of the index. From December to January, the Canadian dollar rose 1.0% relative to the US dollar. If the exchange rate had remained constant, the IPPI would have decreased 0.1% instead of 0.3%.

Industrial Product Price Index, 12-month change

The IPPI rose 1.0% over the 12-month period ending in January, following a 2.0% increase in December. Higher prices for motorized and recreational vehicles and primary ferrous metal products were moderated primarily by lower prices for energy and petroleum products.

Prices for motorized and recreational vehicles (+3.8%), which have been up year over year since July 2018, contributed the most to the gain in the IPPI compared with January 2018. Prices for motor vehicle engines and motor vehicle parts (+5.5%), aircraft (+9.3%) and passenger cars and light trucks (+0.8%) were the main reason for this growth.

Prices for primary ferrous metal products (+14.5%), particularly iron and steel basic shapes (+17.4%) and wire and other rolled and drawn steel products (+23.1%), also drove up the IPPI.

Pulp and paper products were up 8.0% compared with January 2018, mainly because of higher prices for wood pulp (+8.9%), newsprint (+11.0%) and paper (except newsprint) (+7.1%).

The growth in the IPPI compared with January 2018 was moderated primarily by lower prices for energy and petroleum products (-8.1%). Prices for motor gasoline (-15.2%) and, to a lesser extent, light fuel oils (-10.5%) and diesel fuel (-6.7%), were the main contributors to this decline.

Year over year, prices for primary non-ferrous metal products (-4.7%) decreased for the sixth consecutive month in January. This decline was mainly attributable to lower prices for other unwrought non-ferrous metals and non-ferrous metal alloys (-13.6%), unwrought aluminum and aluminum alloys (-13.4%) and unwrought copper and copper alloys (-10.3%).

Raw Materials Price Index, monthly change

The RMPI increased 3.8% in January, after posting an identical gain in December. Of the six major commodity groups, four were up and two were down.

The growth in the RMPI was mainly attributable to higher prices for crude energy products (+8.7%), primarily conventional crude oil prices, which were up 8.8% after a 10.8% increase in December. The RMPI excluding crude energy products edged up 0.1%.

Animals and animal products (+0.9%) also drove up the RMPI, mainly because of higher prices for hogs (+4.0%).

The January growth in the RMPI was slightly moderated by lower prices for metal ores, concentrates and scrap (-0.7%).

Raw Materials Price Index, 12-month change

Compared with the same month in 2018, the RMPI declined 5.5% in January, after posting a 5.8% decrease in December.

The decline in the RMPI compared with January 2018 was mainly driven by lower prices for crude energy products (-8.6%), especially conventional crude oil (-9.1%). The RMPI excluding crude energy products declined 2.9%.

Prices for animals and animal products (-5.9%), particularly hogs (-17.5%) and cattle and calves (-11.5%), also contributed to the year-over-year decline in the RMPI, but to a lesser extent.

Compared with the same month in 2018, prices for metal ores, concentrates and scrap (-4.4%) were down for the fourth consecutive month in January.

Conversely, prices for crop products (+2.9%) rose compared with January 2018, mainly because of higher prices for oats (+20.4%) and grain corn (+12.3%).

StatsCanada

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

DAX steady as investors await German CPI

The DAX has ticked lower in the Thursday session. Currently, the DAX is at 11,473, down 0.12% on the day. In economic news, the focus is on German CPI, which is expected to rebound with a gain of 0.5%. On Friday, Germany releases retail sales and manufacturing PMI, while the eurozone releases CPI estimates.

It is becoming increasingly clear that the equity markets won’t have to worry about the Federal Reserve raising rates anytime soon. With the Fed staying pat, investors will be less attracted to the greenback, which is good news for stock markets. Looking at the ECB, the bank finally terminated its massive stimulus program, but any speculation that the bank will raise rates in the near term appears remote. The ECB has held rates at a flat 0.00% since March 2016, and there are two main factors weighing on a rate hike. First, the eurozone economy is grappling with a slowdown, and the German locomotive has also posted sluggish numbers. As well, inflation levels remain well shy of the ECB target of 2 percent. Unless the economic conditions show a sharp improvement, we may not see a rate hike before 2020.

After an aggressive 2018, when the Fed hiked rates four times, the Fed is yet to make a move in 2019. The dovish stance was reinforced by Fed Chair Powell’s testimony on Capitol Hill on Tuesday and Wednesday. Powell preached patience with regard to changes in interest rate levels. The Fed chair stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and business investment have been soft. Powell was optimistic about the U.S. economy, but said that the lower global growth and uncertainty over trade was weighing on the economy. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 may be on hold until the second half of the year.

Aussie trips up as China PMIs weaken

You don’t bring a MIG-21 to a gunfight

Economic Calendar

Thursday (February 28)

  • 2:00 German Import Prices. Estimate 0.2%. Actual -0.2%
  • All Day – German Preliminary CPI. Estimate 0.5%

Friday (March 1)

  • 2:00 German Retail Sales. Estimate 1.9%
  • 3:55 German Final Manufacturing PMI. Estimate 47.6
  • 3:55 German Unemployment Change. Estimate -5K
  • 4:00 Eurozone Final Manufacturing PMI. Estimate 49.2
  • 5:00 Eurozone CPI Flash Estimate. Estimate 1.5%
  • 5:00 Eurozone Core CPI Flash Estimate. Estimate 1.1%

*All release times are DST

*Key events are in bold

DAX, Thursday, February 28 at 8:40 EST

Previous Close: 11,487 Open: 11,412 Low: 11,409 High: 11,487 Close: 11,473

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Canada: Balance of international payments, Q4 2018

Canada’s current account deficit (on a seasonally adjusted basis) expanded by $5.4 billion in the fourth quarter to $15.5 billion. This increase reflected a higher trade in goods and services deficit, which was moderated by a lower investment income deficit.

The deficit on trade in goods and services rose by $6.1 billion. Exports were down by $7.3 billion to $175.1 billion, mainly on lower sales of energy products. This reflects a sharp decline in energy prices, which were down 22% in the quarter. Imports of goods and services declined by $1.1 billion to $188.5 billion. The deficit on primary income was reduced by $0.7 billion to $1.5 billion. Revenues earned by Canadians investors on their foreign assets were up in the quarter.

Inflows of funds from abroad to finance the current account deficit mainly came from transactions in currency and deposits. These transactions generated a net inflow of $38.6 billion, as non-residents significantly increased their holdings of currency and deposits in Canada.

Direct investment generated a net inflow of funds totalling $3.9 billion, as direct investment in Canada exceeded direct investment abroad for the first time in three quarters. These inflows of funds were partially offset by a strong decline in foreign holdings of Canadian debt securities.

In 2018, the current account deficit narrowed by $1.4 billion to $58.7 billion, the lowest deficit in four years. The trade in goods deficit declined by $3.1 billion, while the investment income deficit increased by $2.3 billion. The current account deficit has now declined for three consecutive years, from a peak of $70.5 billion in 2015.

Current account

Trade in goods deficit up sharply in the fourth quarter

After reaching a record $152.2 billion in the third quarter, exports of goods were down by $7.8 billion in the fourth quarter. Energy products accounted for most of the reduction in the value of exports, notably crude petroleum (down $7.5 billion). Crude petroleum prices declined nearly 50% in the last two months of the quarter. Higher exports of natural gas moderated the overall reduction in energy product exports.

Imports of goods were down by $1.5 billion in the fourth quarter. Energy products, basic and industrial chemical, plastic and rubber products, and motor vehicles and parts all contracted by $0.6 billion. Lower volumes imported were the main contributor to these decreases, except energy product imports, which declined on lower prices.

The trade in services deficit was down $0.2 billion to $6.2 billion in the fourth quarter, led by a higher commercial services surplus.

Lower deficit on investment income

The deficit on investment income declined by $0.7 billion to $0.9 billion in the fourth quarter. Profits earned by residents on their direct investment abroad increased by $1.2 billion to a record $19.0 billion. Meanwhile, profits earned by non-residents on their direct investment in Canada edged down for a second quarter in a row.

Financial account

Foreign holdings of Canadian securities decline for the first time since the end of 2008

Foreign investors reduced their holdings of Canadian securities by $4.8 billion in the fourth quarter, compared with a $26.0 billion investment in the previous quarter. Non-residents invested in Canadian shares, but significantly reduced their holdings of debt securities. This was the first divestment in Canadian securities since the fourth quarter of 2008.

Foreign holdings of Canadian bonds were down by a record $12.9 billion in the fourth quarter, led by strong divestments in December. Retirements of corporate bonds and sales of federal government bonds on the secondary market contributed the most to the decline. The Canadian dollar depreciated by 4.0 US cents against the US dollar in the quarter.

Direct investment in Canada exceeds direct investment abroad

Direct investment in Canada totalled $17.2 billion in the fourth quarter, the highest since the third quarter of 2015. Equity investments made by foreign parents in Canadian affiliates accounted for all of the activity in the quarter. Overall, direct investment in Canada was primarily from the United States and, to a lesser extent, France. Mergers and acquisitions activity totalled $5.9 billion, entirely on transactions from countries other than the United States.

Direct investment abroad slowed to $13.3 billion in the fourth quarter. About three-quarters of this activity was in the trade and transportation sector. Mergers and acquisitions activity totalled $4.5 billion, down from $17.7 billion in the third quarter. Canadian acquisitions of foreign firms ($16.0 billion) in the fourth quarter were moderated by sales of existing interest abroad ($11.4 billion). Issuances of new Canadian shares to non-resident portfolio investors partly contributed to the financing of the acquisition activity.

StatsCanada

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.