Macroeconomic update: Fed stays patient while BoE turns hawkish

Summary:
- NFP report boosts stocks and depresses USD
- Solid economic data from euro area and the United Kingdom
- Chinese manufacturing PMI stayed above the 50 pts barrier

US -  Fed stays on hold, USD dragged down by disappointing wage growth

Federal Reserve maintained its “wait and see” approach on Wednesday and stressed that it is neither biased towards rate hikes nor towards rate cuts. While the GDP growth remained strong in Q1 2019, inflation keeps lagging behind the target and disappointing wage growth presented by the NFP report is unlikely to spur hawkishness among Fed members. Change in employment can be seen as the bright side of April’s jobs report. The US economy added 263k jobs in April, the biggest increase in the past 3 months. Moreover, the unemployment rate dipped to 3.6%, the lowest level since the turn of 1969 and 1970! While lack of acceleration in wage growth data may prove to be a drag for the US dollar, a mix presented by today’s data is generally positive for the stock market.

EURUSD began to climb higher following the release of the US jobs report. Note that with the latest move higher, the main currency pair turned positive on the week. Source: xStation5

Europe - EU inflation accelerates, BoE sends hawkish signal

Data from the euro area released in the past few days was generally upbeat. GDP report for the first quarter of the year showed that economic growth accelerated to 0.4% QoQ and 1.2% YoY. Moreover, a significant pick-up in the German CPI inflation allowed the gauge for the whole eurozone to accelerate from 1.4% YoY in March to 1.7% YoY in April. However, EURUSD failed to deliver a more significant move higher this week as post-FOMC USD strength more than offsetted optimism in Europe.

Elsewhere, a pack of the PMI indices from United Kingdom was released. As all three of them came more or less in-line with forecasts no major price reaction occurred on the GBP market. Nevertheless, as construction and services gauges moved back above the 50 pts threshold, an improvement is apparent. The Bank of England was even more upbeat. No change to the level of interest rates was delivered during Thursday’s meeting but central bankers hinted that more rate hikes than one expects may be on the cards. Summing up, one should not be surprised that GBP is trading generally higher given such a good week.

A strong pick-up in the German inflation in April led to higher-than-expected pace of price growth on the euro area level. Source: Macrobond, XTB Research

Asia - Chinese manufacturing PMI stays above contraction threshold

Data from Asia was scarce this week as some countries, like for example China and Japan, were off for holidays for the majority of it. Nevertheless, investors were offered an update on the moods within the Chinese economy with the release of PMI indices for April. Both gauges, manufacturing and non-manufacturing, came in lower than expected. However, a key takeaway is that neither index dropped below the 50 pts threshold, what indicates an expansion in both sectors. However, as the manufacturing gauge sits at 50.1 pts now, there is a lot of concern that more recession-like readings may come in the nearby months. Amid all this uncertainty, CHNComp (HSCEI futures underlying) finished the week flat near 11500 pts handle.

Following two failed attempts to break above the resistance zone ranging above the 11800 pts handle, CHNComp turned lower. The index found support at the 50-session moving average but in case major upward move is to be started, similarly significant catalyst could be needed. Source: xStation5