Analysts at Nomura noted that the Chicago PMI improved only 0.2 index points to 57.6, below expectations (Nomura: 59.0, Consensus: 58.0), indicating continued business sector growth but at a slower pace. 

Key Quotes:

“April’s reading was 10.2 points below the December 2017 high of 67.8. The underlying subindices were mixed. Production growth picked up somewhat while new orders moderated. In addition, the employment index declined 7.3p to 52.1, its lowest reading since October 2017.”

“On one hand, the moderation in ISMrelated sub-components in today’s report poses some downside risk for tomorrow’s ISM manufacturing release, where we expect a small decline.”

“However, most of the Chicago PMI subindices are coming off of highs that were likely unsustainable and, despite recent declines, continue to point towards steady growth. With respect to recently enacted steel and aluminum tariffs, the survey noted only a third of respondents expected a “major impact” for their business while just over half expected no significant impact.”

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It was revealed today by Israel that Iran has been making efforts all along to develop missile-deliverable nuclear weapons.

UPDATE: US Official confirms authenticity information provided by Israel
 Fundamental/political wrap: reflation trade under pressure, dollar goes bid

Meanwhile, the White House has made a statement that “Israel’s information provides new and compelling evidence about Iran’s efforts to develop nuclear weapons”. 

More from the White House here:

carefully examining information released by Israel on Iran nuclear program
these facts are consistent with what the United States has long known. That Iran has a robust, clandestine nuclear weapons programs
Israel is information provides new and compelling details about Iran’s efforts to develop missile deliverable nuclear weapons

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Australian Trade Minister Ciobo has given his thoughts about the US steel and aluminum tariffs, confident that Australia has secured a permanent exemption.

Key highlights

Confident that Australia will be permanently exempt from US steel and aluminum tariffs.

May 1st is the final exemption date.

Doesn’t believe that Australia will get caught in the US-China trade spat.

Australia would welcome the US back to the TPP table.


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Analysts at Nomura noted the key US data from overnight and the PCE price index was essentially unchanged (+0.032%) m-o-m in March, in line with the market consensus (0.0%).

Key Quotes:

“On a 12-month basis, PCE prices rose 2.0% (2.014%) in March, from 1.7% (1.731%) previously, matching expectations (Nomura: 2.046%, Consensus: 2.0%). Excluding food and energy, the core PCE price index, the FOMC’s preferred measure of the underlying inflation trend, rose by 0.2% (0.153%) m-o-m in March (Nomura: 0.191%, Consensus: 0.2%), translating into an increase of 1.9% (1.882%) on a y-o-y basis (Consensus: 1.9%, Nomura: 1.917%), up from 1.6% (1.571%) in February.”

“With mixed backward revisions to the prior months, y-o-y core PCE inflation was slightly below our expectations on an unrounded basis. However, there were no major surprises in today’s inflation data. As we had expected, the rise of three-tenths of a percent in core PCE inflation on a y-o-y basis was mostly due to base effects.”

“We are expecting a more gradual pick-up in core PCE inflation going forward and look for core PCE inflation to reach 2.2% in Q4 2018 and 2.3% in Q4 2019.”

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New Zealand’s Finance Minister Robertson has announced that New Zealand’s government budget for 2018 will be delivering a surplus for fiscal year 2018.

Key highlights

The government has reprioritized $700 million in funding over four years.

$1.4 billion in funding has been freed up when combined with efforts to crack down on speculators and tax dodgers.

New Zealand stresses they are dedicated to budgetary responsibility.

Wants to see Crown debt reduced to 20% of GDP within five years.

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Forex today was alarmed by headlines around Iran and the reflation trade was under scrutiny with poor European data that has been leading to growing doubt over the consensus of a synchronized global growth theme and the reflation trade is back under pressure. The dollar was higher and the commodity complex is looking vulnerable.

DXY ranged between 91.4820-91.9190 and closed around 91.8410. As far as yields go, the US benchmark and 10yr treasury yield fell 1-2 basis points to 2.96%, while 2yr yields were unchanged around 2.49%. The Fed fund futures yields price in 2 more rate hikes this year, with a chance of a third making for 4 in total.

As for other currencies, the single unit was under pressure in European trade due to the data from Germany and Italy adding to the miss in expectations of late and traders handed the pair over to NY desks just below the 1.22 handle. The pair traded heavy all day, as US data in the PCE readings underpin the notion of further Fed rate hikes to come. EUR/USD was as low as 1.2064 before a bounce to 1.2106 for a close of 1.2079 as the yen perks up again and grads EUR/JPY with it. 

GBP ended the US session around 1.3760, (1.3786-20 range), and down by 0.18%, but closing above the European session and two months low of 1.3715. The Rudd headlines were a weight on the pound as May’s leadership is called into question once again. The recent shift in BoE expectations, (10th May meeting), are also weighing with markets now figuring just a 20% chance for a rate hike this time around. 

EUR/GBP finished up the day at 0.8782, -0.23% having traded between a range of between 0.8828-0.8765. The cross is backing away from the recent highs of 0.8826, pressured by a stronger dollar while otherwise, the waning prospects of rate hikes in the UK and a hard Brexit underpin the upside.

USD/JPY held the 109 handle, despite PCE and a stronger dollar, continuing in its rally and headed for a test of the key 200-D SMA. Essentially, the pair is stuck within familiar ranges and the wobble in the reflation trade is playing into the hands of the dollar bulls but offset by the yen’s safe-haven status. Eyes on the FOMC this week and PMI’s and the divergence between the two Central Banks. 

As for the antipodeans, for the Kiwi, it opened around 0.7055 after pair lost its footing early on in the European shift and bears stayed on top as NY got going with a strong dollar. A new trend low was set at 0.7033 as the yen picks up a strong bid when risk soured, sending NZD/JPY lower and weighing on the Kiwi.  The Aussie was pressured in European trade and it continued to fall in NY towards Friday’s low when the dollar went full-on bid. Risk soured and the yen weighed some more through AUD/JPY. AUD/USD made a low of 0.7525 and closed at 0.7530 ahead of the RBA in Asia where no rate change is expected.

Key notes from US session:

Fundamental/political wrap: reflation trade under pressure, dollar goes bid

Key events ahead:

Analysts at Westpac offered their outlook for the day ahead a follows:

“The RBA has made clear that it isn’t considering moving its cash rate from 1.5% near term so today (2:30pm Syd) markets will instead focus on the statement. In particular, we will be keen to see whether Governor Lowe will indicate that the RBA is cutting its 2018 GDP forecast. These forecasts are in the quarterly Statement on Monetary Policy on Friday. We expect the RBA to lower its growth forecast from 3.25% to 3.0%. This is still above Westpac’s forecast of 2.7%. We will also hear from Lowe at an RBA dinner from 7:20pm Syd.

There are market closures for May Day holidays across Asia (ex-Japan) and Europe (ex-UK, which is on holiday next Monday instead).

The twice-monthly GDT dairy auction takes place in the London session. Futures price in a 3% gain in whole milk powder prices.

The US data calendar holds some interest, featuring March construction spending and the April national manufacturing survey from ISM, which should remain upbeat once more, closer to 60 than 50. Note China’s equivalent survey printed at a muted 51.4 yesterday.”

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