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Eurozone Jobless Rate Unchanged In March
Eurozone unemployment rate held steady for a third successive month in March at a high level, suggesting that the economic recovery is not yet strong enough to improve the labor market situation.
The seasonally adjusted unemployment rate was 11.8 percent in March, unchanged from February, after revisions to data from the previous months, figures from Eurostat showed Friday.
Economists had expected the figure to hold steady at February's original 11.9 percent.
The jobless rate has been at 11.8 percent since December 2013, Eurostat said. In March last year, the figure was 12 percent.
"The Eurozone jobless rate has hardly fallen from its 12 percent peak. This is partly because unemployment is lagging economic developments: the economic recovery has yet to feed through decisively to the labor market," ING Bank economist Martin van Vliet said.
"But it is also because growth, although rising, remains too slow to generate enough jobs to make a serious dent in unemployment."
The number of unemployed in the euro area totaled 18.913 million in March, down by 22,000 from the previous month and by 316,000 from a year ago.
In March, the lowest unemployment rates were recorded in Austria, Germany and Luxembourg, while the highest figures were in Greece and Spain.
"Perhaps the one piece of good(ish) news is that France's unemployment rate did not rise for a third successive month," Capital Economics Chief European Economist Jonathan Loynes said.
"But, at 10.4 percent, it remains over double that of Germany, highlighting the divergences even within the euro-zone's "core"."
In the EU 28, the unemployment rate was 10.5 percent in March, unchanged from February. A year ago, the rate was 10.9 percent.
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Eurozone Factory PMI At 3-month High As Recovery Broadens
Eurozone manufacturing sector expanded at the fastest pace in three months in April amid growth in output and new orders in all nations, suggesting that recovery is gaining traction, results of a survey from Markit Economics showed Friday.
The seasonally adjusted Markit Eurozone Manufacturing Purchasing Managers' Index climbed to a three-month high of 53.4 from 53 in March. The final score was also slightly above the flash estimate of 53.3.
A PMI reading above 50 suggests expansion in the sector and the euro area manufacturing has now expanded for ten successive months.
Production rose for the tenth successive month and the rate of expansion was the highest since January. The output index of the survey suggest quarterly growth of official industrial production of close to 1 percent.
New order growth accelerated in April amid a stabilisation in domestic market conditions and rising export demand. All nations except Greece and Austria, reported increase in export demand, largely driven by improving economic conditions in key markets such as the U.S. and Asia.
Manufacturing growth was witnessed across all of the euro area nations for the first time since November 2007 with both output and new orders rising, Markit said.
"Regardless of the divergent rates of growth, perhaps the best take-away from the April survey is the news that all countries recorded PMI readings above the no change level of 50, which highlights how the recovery is becoming more broad-based and therefore hopefully more sustainable, as rising demand from each member state feeds growth in other countries," Markit Chief Economist Chris Williamson said.
"It remains to be seen is whether this strengthening of demand will feed through to more pricing power, which remains weak due to the widespread existence of spare capacity and high unemployment in many countries."
Meanwhile, inflationary pressures remained subdued in April. Input prices fell the most since July 2013. This was mainly due to successful price negotiations, competition among suppliers and lower prices for metals and food products.
Output prices also declined in April, down for a second straight month. Only the Netherlands reported an increase during the month.
"With factory gate prices falling for a second month running, policymakers will remain concerned about deflationary forces," Williamson said.
Ireland logged the biggest expansion in manufacturing during April with the corresponding index hitting a 38-month high. Other Eurozone members recording improvement in growth were Germany, Italy and Austria.
The pace of growth slowed in France, Spain and the Netherlands. Further, Greece returned to growth.
Employment growth improved in Germany, Italy, Spain, the Netherlands and Greece, while it stabilised in Ireland and Austria. In contrast, jobs were cut in France, reversing a gain in the previous month that was the first rise in two years.
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EUR/USD Forecast May 5, 2014, Technical Analysis
The EUR/USD pair initially fell during the session on Friday as the nonfarm payroll came out much higher than anticipated. However, we get a significant bounce of the 1.38 handle, and formed a massive hammer. We believe that a break above the top of the shooting star from the Thursday session is a buy signal, but are very cognizant of the fact that the ECB is not what the Euro to go above the 1.40 level. With that, we expect to see a lot of choppiness in the near-term. Ultimately though, we are still within the consolidation area that we have been trading in for 3 weeks.
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EUR/USD Forecast May 5-9
EUR/USD traded in range throughout the week. Its dips to the downside resulted in quick bounces. The big event of the upcoming week is the rate decision: will Draghi make a bold move? Apart from that, we have services PMIs and a few important German figures. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
Euro-zone inflation rose to 0.7% and core inflation to 1% in the initial data for April. These are still low levels, but perhaps not ones that will force the ECB to act. Draghi’s dilemma is becoming more complicated and the uncertainty towards the decision is growing. In the US, Q1 growth was quite poor, but data for April already looks positive. The strong NFP report helped the dollar only temporarily.
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Europe Week Ahead: ECB, BoE, EZ PMI, German-, French-, Spanish-, Italian-, UK IP
The rebound in Eurozone HICP inflation in April (to 0.7% for the headline, and to 1.0% for the core index) should convince the ECB to leave policy rates unchanged at its 8 May meeting.
However, we still expect the staff forecasts to be revised downwards, and the ECB to cut rates in June. Either way, Mario Draghi will repeat that the Governing Council is (unanimously) ready to take more aggressive action if needs be.
At the same time, the resilience in forward-looking indicators to external risks, as well as the early evidence that the credit cycle is set to improve later this year, will reduce the likelihood of any significant asset-purchase programme for now. Developments in inflation expectations, including in the ECB’s Survey of Professional Forecasters to be published on 15 May, will hold the key to the outlook for unconventional policy measures, in our view.
True, the ECB can always suspend SMP sterilisation in the face of higher (and more volatile) overnight rates this past month, but excess liquidity is due to rebound to above EUR150bn next week and Eonia should ease, while term market rates have remained contained with 1Y1Y Eonia below 20bp again.
On balance, we think the ECB will continue to describe the normalisation in money markets as consistent with a self-regulation process while acting in May only if it feels it needs an excuse to ease, perhaps also to try to cap EUR appreciation.
Next week, the European economic calendar will provide us with key industrial production data for March (notably Germany, France, Italy and Spain). We expect German industrial production to increase slightly in March to 0.3% MoM (4.5% YoY). The progress in the economic climate suggests an improvement in order books both from domestic demand and abroad. The employment figures are consistent with continued job creation and strong output prospects. French industrial production should remain stable in March (+0.2% YoY, after −0.8% YoY in February). According to the business managers surveyed, the business climate in industry was nearly stable in March compared with the previous month. The composite indicator published by INSEE has increased by one point in March, at 101. The progression in activity in France should remain modest in Q1 (+0.1% QoQ in our scenario). The business climate in the INSEE business tendency surveys has been stable on Q1. This slowdown in the improvement of the outlook points the lack of dynamism in the various demand components.
Italian industrial production is expected to rise by 0.7% MoM (1.5% YoY) in March, making up for the February fall (−0.5% MoM). That should bring Q1 industrial production growth to 0.3% QoQ, a slowdown from the 0.5% growth rate in Q413. Inversely, industrial production in Spain is expected to have progressed by 1.6% YoY in March (0.2% MoM), at a slower rate of growth than in February (+2.8% YoY). However, if March figures turn out in line with our expectations, Spanish production will have risen by 0.9% QoQ over Q114, compared with 0.1% QoQ in Q413.
The services PMIs will be published next week for both Italy and Spain, alongside the final estimates for the Eurozone PMIs. The latter are likely to remain broadly unchanged versus their flash estimates. In the Italian services sector, the business expectations component surged last month, which should foster the return in growth in March. Therefore, the Italian services PMI is expected to once again surpass the 50-point threshold in March (to 50.4).
The Spanish services PMI is expected to suggest strong growth in March as well, but at a more moderate level than in February. The unusually late Easter holidays this year could also have a negative influence on the figures for March.
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Eurozone unemployment numbers fall in March
Eurozone unemployment numbers have fallen slightly to 19.81 million, according to EU figures for March.
Unemployment for the area is down from 19.84 million in February.
The unemployment rate has remained at a steady 11.8% since December 2013, but numbers of unemployed in the area have gradually fallen since January.
The figures bolster European Central Bank (ECB) projections of steady economic growth in the currency area, economists said.
Timo del Carpio, European economist at RBC Capital Markets, said the figures "lend more weight to the view that unemployment in the euro area peaked late last year, which will offer some degree of reassurance to policymakers that the recovery is slowly gaining traction."
The March unemployment figures are an average for the 18 countries in the eurozone. There are large differences in employment between countries.
Austria had the lowest rate of unemployment, at 4.9%, while the country with the highest unemployment rate for March was Spain, at 25.3% unemployment.
However, the most recently available figures for Greece put unemployment at 26.7% for January.
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EUR/USD weekly outlook: May 5 - 9
The euro pared back losses against the dollar on Friday to finish almost unchanged after the latest U.S. employment showed stronger-than-forecast jobs growth but also pointed to weak earnings growth and a steep decline in labor force participation.
EUR/USD fell to lows of 1.3812 before recovering to trade at 1.3869 by the close of Friday’s session. For the week, the pair edged up 0.12%.
The pair is likely to find support at 1.3811, Friday’s low and resistance at 1.3900.
The dollar initially strengthened against the euro after the Labor Department reported that the U.S. economy added 288,000 jobs in April, well above expectations for jobs growth of 210,000. The U.S. unemployment rate dropped to a five and a half year low of 6.3%, compared to expectations for 6.6%.
But the dollar gave back gains after the report also showed that the labor force participation rate, which measures the proportion of people either working or looking for work, fell to 62.8% from 63.2% in March.
In addition, average wage growth edged down in April from the same month a year earlier, dampening the medium term inflation outlook.
The report came after preliminary data on Wednesday showed that U.S. gross domestic product grew at an annual rate of just 0.1% in the first three months of the year, well below forecasts for an expansion of 1.2%.
Despite the sharp slowdown in growth the Federal Reserve said Wednesday it would reduce its bond purchases to $45 billion a month. The Fed also said interest rates would remain on hold at record lows for a "considerable time" after the bond-buying program ends later this year.
The U.S. central bank acknowledged that first quarter growth was far weaker than expected, but added that growth had started to pick up in recent weeks.
The weak U.S. growth data helped the euro rebound from three-week lows against the dollar.
The euro fell against the dollar after a report showed that the annual rate of euro zone inflation ticked up to 0.7% in April from a record low of 0.5% in March, falling short of expectations for in increase to 0.8%. The European Central Bank targets an inflation rate of close to but just below 2%.
The slight uptick in consumer prices did ease pressure on the ECB to implement further monetary easing measures to tackle low inflation in the region.
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Euro zone PPI falls 0.2% in March
Producer price inflation in the euro zone fell for the third consecutive month in March, underlining concerns over deflation, official data showed on Monday.
In a report, Eurostat said that its producer price index eased down by a seasonally adjusted 0.2% in March, in line with expectations. Producer prices inched down 0.2% in February.
Year-over-year, the producer price index declined at an annualized rate of 1.6% in March, compared to expectations for a 1.7% drop, after falling at a rate of 1.7% in February.
Following the release of the data, the euro held on to modest gains against the U.S. dollar, with EUR/USD easing up 0.05% to trade at 1.3876.
Meanwhile, European stock markets remained lower. The Euro Stoxx 50 fell 1.2%, France’s CAC 40 lost 1.2%, Germany's DAX dropped 1.4%, while London’s FTSE 100 remained closed for a holiday.
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EUR Shows Signs Of Strength This Week
NFP did surprise, completing a week of whipsaw data - softer than expected GDP report followed by very strong employment data. However, the bigger surprise was the dollar weakening despite crushing many expectations. In the end the unemployment headlines being stronger has not been enough to change the tune that capital markets have been playing for sometime. If anything, it confirms that the weather-related bounce back is happening. The key to the "buck's" weakness lies with the Fed. It's going to take some time to gauge the underlying performance of the economy - buying Yellen and company more time and with wage inflation so tame, there is no reason for them to change their "lower for longer" message. With Q3 on the table the dollar has problems.
The boost to market sentiment provided by NFP has not lasted very long. Global equities start the holiday-impeded week on the back foot, as investors digest the latest sign of weakness from China's manufacturing sector. Investors are also keeping an eye on the spreading conflict in the Ukraine. With London on a public holiday trading was always going to be somewhat subdued. Nonetheless, a disappointing Chinese HSBC manufacturing PMI is not helping (April 48.1 vs. 48.3). This morning's print continues to defy the steadying trend in official stats, however, not all is bad news. Despite the final headline be downgraded, there were signs of stabilization in total orders and production, with both indices rising month-over-month for the first time in 12-months. This tidbit of positivity would suggest that Beijing's mini-support measures are helping to prevent a steeper downturn to Chinese GDP.
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EUR/USD gains as Ukraine unrest offsets U.S. data
The euro edged up against the dollar on Monday as investors avoided the greenback on fears an escalating crisis in Ukraine may drag the Washington into the conflict and dampen recovery, though upbeat data out of the U.S. service sector cushioned the dollar and stabilized the pair.
In U.S. trading, EUR/USD was up 0.10% at 1.3883, up from a session low of 1.3865 and off a high of 1.3886.
The pair was likely to find support at 1.3812, Friday's low, and resistance at 1.3889, Thursday's high.
Investors were paying close attention to events unfolding in Ukraine, after conflict between the government and pro-Russian separatists grew more widespread over the weekend, which weakened the dollar.
Elsewhere, soft output data out of China sparked safe-haven demand for the yen, which came at the greenback's expense against the euro.
A final reading of China’s HSBC manufacturing purchasing managers’ index came in at 48.1 April, down from a preliminary estimate of 48.3 and missing forecasts for an uptick to 48.4. A reading below 50 indicates a contraction.
Elsewhere, profit taking from Friday's upbeat jobs report softened the greenback as well.
The dollar firmed last week after the Labor Department reported that the U.S. economy added 288,000 jobs in April, well above expectations for jobs growth of 210,000, while the unemployment rate dropped to a five-and-a-half year low of 6.3%.
Still, concerns that long-term unemployment will remain a problem for the U.S. economy tarnished the otherwise positive jobs report, as the headline jobless rate fell in part due to a drop in the labor force, a sign that many who have been out of work for a long time quit looking for jobs and thus are no longer considered part of the labor pool.
Supporting the U.S. currency, however, was an upbeat report on the U.S. service sector.
In a report, the Institute of Supply Management said its non-manufacturing purchasing managers' index rose to a five-month high of 55.2 in April, from a reading of 53.1 in March, compared to expectations for a rise to 54.1.
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