The dollar index (DXY00) Wednesday rose by +0.24%. Wednesday’s stock slump boosted liquidity demand for the dollar. Also, Wednesday’s news that showed the Q1 core PCE price index rose more than expected is hawkish for Fed policy and dollar supportive. The dollar fell back from its best levels on signs of weakness in the US labor market after the Apr ADP employment change rose less than expected. The dollar was also pressured after the US economy contracted more than expected in Q1.
The US Apr ADP employment change rose +62,000, weaker than expectations of +115,000 and the smallest increase in 9 months.
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US Q1 GDP fell -0.3% (q/q annualized), weaker than expectations of -0.2% and the steepest pace of contraction in 3 years. The Q1 core PCE price index rose +3.5% q/q, stronger than expectations of +3.1% q/q.
The US Q1 employment cost index rose +0.9%, right on expectations.
The US Apr MNI Chicago PMI fell -3.0 to 44.6, weaker than expectations of 45.9.
US Mar personal spending rose +0.7% m/m, stronger than expectations of +0.6% m/m. May personal income rose +0.5% m/m, stronger than expectations of +0.4% m/m.
The US Mar core PCE price index, the Fed’s preferred inflation gauge, rose +2.6% y/y, right on expectations and the slowest pace of increase in 9 months.
US Mar pending home sales rose +6.1% m/m, stronger than expectations of +1.0% m/m and the biggest increase in 15 months.
The markets are discounting the chances at 8% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) Wednesday fell by -0.41%. The euro posted moderate losses on Wednesday after German Apr consumer prices rose by the smallest amount in seven months, which is dovish for ECB policy. Losses in the euro were contained after Eurozone Q1 GDP expanded more than expected and after German Mar retail sales fell less than expected.
Eurozone Q1 GDP rose +0.4% q/q and +1.2% y/y, stronger than expectations of +0.2% q/q and +1.1% y/y.
German Mar retail sales fell -0.2% m/m, a smaller decline than expectations of -0.4% m/m.
German Apr CPI (EU harmonized) rose +2.2% y/y, stronger than expectations of +2.1% y/y, but still the slowest pace of increase in 7 months.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Wednesday rose by +0.32%. The yen was under pressure Wednesday from weaker-than-expected Japanese economic news on Mar industrial production and Mar retail sales, dovish factors for BOJ policy. Also, expectations that the BOJ will leave monetary policy unchanged at Thursday’s policy meeting are undercutting the yen. Wednesday’s decline in T-note yields limited losses in the yen.
Japan Mar industrial production fell -1.1% m/m, weaker than expectations of -0.4% m/m.
Japan Mar retail sales fell -1.2% m/m, weaker than expectations of -0.7% m/m and the biggest decline in 6 months.
June gold (GCM25) Wednesday closed down -14.50 (-0.43%), and May silver (SIK25) closed down -0.744 (-2.24%). Precious metals prices settled moderately lower on Wednesday. The stronger dollar Wednesday was bearish for metals prices. Also, tariff concerns eased slightly and curbed safe-haven demand for precious metals after President Trump signed an executive order lifting tariffs on foreign parts for cars and trucks made in the US. In addition, Wednesday’s news showed that the US Q1 core PCE index rose more than expected, which may keep the Fed from cutting interest rates and is bearish for precious metals.
Silver prices retreated on negative carryover from Wednesday’s -5% plunge in COMEX copper to a 2-1/2 week low. Signs of weak industrial demand in China are undercutting copper and silver prices after China’s Apr manufacturing PMI fell -1.5 to 49.0, weaker than expectations of 49.7 and the steepest pace of contraction in 16 months. Also, the contraction in US Q1 GDP by the most in three years shows weak economic growth that is negative for industrial metals demand.
Concern the US-China trade war will persist and undercut global economic growth is boosting safe-haven demand for gold and undercutting silver after President Trump said the US would not lower tariffs on China unless “they give us something substantial.” Geopolitical risks in the Middle East are boosting safe-haven demand for precious metals as the Israel-Hamas and the US-Houthi conflicts continue.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
