Forex news for NY trading on May 1, 2019
- Stocks end at lows after rally fizzles on Powell's less dovish comments
- May seasonals: Three currencies that tend to struggle in May
- Low growth forecasts from BOC diminish the chance of a rate cut
- At the start and at the end of the press conference from Fed's Powell
- Powell Q&A: We don't see a strong case for moving in either direction
- Fed's Powell: Incoming data have been broadly in-line with expectations
- US-China trade deal 'possible' by next Friday - report
- The full FOMC statement for May 2019
- Federal Reserve holds interest rates in 2.25%-2.50% range, as expected
- Political news: PM May has sacked Defence Sec. Williamson
- Politico: US and China near deal to roll back some tariffs
- Goldman Sachs lowers GDP tracker to 1.7% from 1.9% last
- Atlanta Fed GDPNow 2Q estimate 1.2%.
- PM May: Economy has remained resilient amid Brexit uncertainty
- DOE crude oil inventory data 9934K vs 1750K estimate
- US construction spending for March -0.9% versus 0.0% estimate
- US April ISM manufacturing index 52.8 vs 55.0 expected
- Markit US April final PMI 52.6 vs 52.4 expected
- Canada April Markit manufacturing PMI 49.7 vs 50.5 prior
- Canada MLI leading indicator for March 0.2% vs 0.0% last month
- US April ADP employment +275K vs +180k expected
- The CHF is the strongest and the NZD is the weakest as NA traders enter for the day
In other markets, the snapshot near the end of day is showing:
- Spot gold fell -$7.23 to $1276.30. The decline reversed earlier gains on a reversal of the USD. The high for the day reache $1288.10. The low reached $1272.87
- Crude oil futures are trading at $63.57, down -$0.34 or -0.53%. Inventory data today showed a large build of 9934K vs 1750K estimate. The low reached down to $62.77 befor rebounding into the close
The USD was mixed but lower for most of the day. The economic data was a mixed bag. The ADP employment report came in much stronger than expectations at 275K vs 180K estimate. However, Moodys Analytic's Mark Zandi discounted the data as being - well not believeable. As a result the better data was ignored. Later ISM manufacturing came in much weaker than expectations at 52.8 vs 55.0. Construction spending was also weaker at -0.9% vs 0.0% estimate.
That data was not great at all and justified a modestly lower dollar going into the FOMC decision.
For the FOMC decision, the market would be focused on the not only the statement, but also what Fed's Powell had to say. The statement did not surprise.
- Interest rate on excess reserves 2.35% vs 2.40% prior
- Repeats 'patient' language
- Economic activity has risen at a solid rate
- Removes reference to low inflation being due to energy prices
- Says overall and core inflation have declined on a 12-month basis
- Survey-based measures of longer-term inflation expectations are little changed
- Jobs gains have been solid, growth of household spending and business fixed investment have slowed
- Vote was unanimous
The cut to IOER was framed as a technical move, but was taken a little more dovish. Nevertheless, the Fed said that the move was intended to keep Fed funds within the range (it's been creeping up to 2.45%).
The dollar moved to lows with the EUR, GBP, JPY, CHF all making new lows vs the greenback before Powell took the stage for the press conference. At the time, stocks were near highs, bond yields were near the days lowest levels and the dollar was near it's low.
At the end of the press conference,
- The S&P lost nearly -10 point
- The Nasdaq lost nearly -32 points
- The Dow lost nearly -70 points
Yields in the 2 year moved up 8.5 bps to 2.213% to 2.306%, and 10 year yields moved from 2.45% to 2.51%.
The USD has reversed to the upside (major pairs moving 43-66 pips in the direction of a stronger dollar.
The catalyst?
Powell saying that the FOMC thought the inflation data was largely transitory. For a market that had penciled in a 65% chance of a cut by the end of the year, that thought had to be pared back.
The moves by the end of the day were even more pronounced as stocks closed at session lows (S&P fell -22 points. Nasdaq fell -45 points and Dow fell -162 points) Below are the % changes of each. Note how they finishe at session lows.
Yields steadied a bit but still closed off the low levels especially in the short end of the yield curve.
For currencies, they ended the day well off the lows and higher on the day vs the NZD, AUD, CAD, and EUR and marginally lower vs the CHF and GBP (they had a long way to go to get back to unchanged vs those currencies.
