From Marc to Markets:
No Help on May Day, which is also Fed Day
Overview: The May Day holiday has shut most markets in Asia and Europe, making for subdued market action. Equity markets that are open, like Australia and the UK, advanced and US shares are trading higher helped by Apple's upbeat forecasts and sales that beat expectations. Indeed, there is a risk that the S&P 500 gaps higher at the open after closing on the highs of the day, which were a new record. The US dollar is narrowly mixed but mostly softer. The New Zealand dollar is a notable exception. Disappointing employment growth boosts the chances of a rate cut next week. The Federal Reserve though is the central bank of the day. President Trump's demand for a rate, where he says a 100 bp would see growth surge, is likely to fall on deaf ears. The market hardly flinched at the latest tweets....MORE
Asia Pacific
Many were already looking for a rate cut next week by the Reserve Bank of New Zealand and the weaker employment report fans such expectations. The decline in the unemployment rate (4.2% vs. 4.3%) was the result of a sharp decline in the participation rate (70.4% vs. 70.9%). The most important takeaway was the 0.2% decline in Q1 employment. The median forecast in the Bloomberg survey called for a 0.5% gains after a 0.1% increase in Q4 18. Private wages, with and without bonus payments increased by 0.3%, which were also slower than expected (0.5%). Both the forward market and the OIS imply that about a 60% chance of a cut next week has been discounted.
South Korean exports fell for the fifth consecutive month in March, but the 2% year-over-year decline was almost a third of the decline that the median forecast anticipated. Weakness in semiconductors (-0.9%) continued, but there were a small uptick memory chip exports. Imports were also stronger than expected, rising 2.4% compared with forecasts of a 1.0% decline.
US-China trade talks are thought to be entering the final stages, and there is still hope that an agreement can be reached in the coming weeks and that a meeting between the two presidents is possible toward the end of the month. The Financial Times reports today that Trump has softened the language demanding that China stop its commercial cyber theft. This plays into fears that Trump is mostly interested in transactional (short-term) benefits rather than deeper structural reforms. Reports indicate that China is resistance US demands to change its industrial policy, including its industry subsidies. Recall that at the end of last week, FBI Director Wray warned that China had "pioneered a societal approach to stealing innovations and that all of the 56 FBI field offices are conducting economic espionage investigations across most industries that almost invariably lead to China. Separately, China announced its intention to remove limits on foreign ownership of local banks and make it easier for foreign insurance firms to enter the on-shore market.
The dollar has been confined to a less than a fifth of a yen range within the ranges seen yesterday. The five-day average slipped below the 20-day average yesterday for the first time in a month. The greenback is holding above JPY111.25, and below there support is seen near JPY110.80. There is a $380 mln options at JPY111.35, which expires today, but is very much in play. A move above JPY111.60 would help lift the tone. The Australian dollar is also trading inside yesterday's ranges with the help of mixed PMI readings and the lack of much participation. Initial resistance is pegged near $0.7070, while support is seen ahead of $0.7030. Note that Japanese and Chinese markets are closed for the rest of the week.
Europe
The UK's manufacturing sector slowed according to the Purchasing Managers Index. Slower inventory accumulation and weaker exports pushed the manufacturing PMI off of 13-month highs see in March (55.1) to 53.1. Note it averaged 53.6 in Q1 and 52.9 in Q4 18. Separately, Nationwide's house price index rose 0.4% in April for a 0.9% year-over-year rise. Both were sequentially stronger than March. The Bank of England meets tomorrow and updates its economic forecasts in its Quarterly Inflation Report. There is practically no chance of a change in policy....
