Last month, the sentiment in financial markets turned negative after the Eurozone manufacturing sector showed a deep contraction. Many major central banks turned dovish from neutral or hawkish previously as the global economic slowdown intensified, which hurt the sentiment. But the sentiment has improved this month, especially after the Chinese manufacturing sector made a turnaround and came back into expansion. The improved sentiment has helped risk assets during April with commodity Dollars and stock markets on the climb, while safe havens have crashed lower.
Today though, the situation reversed after the manufacturing report was release this morning from the Eurozone. Manufacturing was expected to improve and despite a small improvement, the manufacturing activity remains very weak in the Eurozone, particularly in Germany. French manufacturing was expected to come back to expansion but it remained in contraction as well. The services PMI also posted another decline, which means more slowdown for this sector in the Eurozone. This shows that the global economic slowdown is not over yet, which has hurt the sentiment and sent safe havens higher, while risk currencies are declining.
- German PPI – The producer price index (PPI) turned negative in December in Germany, following the decline in Oil prices at the end of last year. It turned positive again in January, erasing losses of the previous month, but in February we saw the PPI decline again, this time by 0.1%. Today’s report was expected to show a 0.2% in producer prices for March but instead came at -0.1% again.
- French Services and Manufacturing PMI – The services PMI report fell below the 50 level in December as the global economic slowdown and the yellow vest protests had an impact on French services. This sector has been improving since January and it was expected to improve this month as well, but still remain in contraction below 50 points. Although, today’s report came at 50.5 points against 49.8 points expected, so this sector is back in expansion after a really soft period. But, we can’t say the same for manufacturing which dipped into contraction last month, but was expected to return to flat at 50 PMI points this month. It missed expectations and softened further as the PMI indicator fell to 49.6 points from 49.8 points in March.
- German Services and Manufacturing PMI – The services sector remains in a good shape in Germany as it grew to 55.6 points today against 55 points expected. Last month’s number was also revised higher from 54.9 points to 55.4 points. But manufacturing, which is more important in Germany, is in a really difficult spot. Last month manufacturing PMI fell to 44.7 points, which means deep contraction, and was revised lower to 44.1 point in the final reading two weeks ago. This month, manufacturing PMI was expected at 45.2 points but it missed expectations, coming at 44.5 points. A small improvement, but still in deep recession.
- Eurozone Services and Manufacturing PMI – As German and French figures show, manufacturing is in a difficult spot in the Eurozone as well. It fell into contraction in February which deepened in March. This month, manufacturing PMI was expected to increase from 47.5 points to 48.1, but missed expectations coming at 47.8 points, which is an improvement again, but it’s not enough. The services sector is in expansion but it softened again this month, falling from 53.3 points to 52.5 points, missing expectations of 53.1 points.
- UK Retail Sales – In recent weeks we have seen some mixed numbers from the UK as manufacturing and industrial production jumped due to stockpiling ahead of Brexit. Retail sales have also been mixed, declining in three out of the last four months in 2018, but they have been positive so far this year. February’s number was even revised higher today from 0.4% to 0.6%. Although a decline was expected for March, the actual number beat expectations of -0.3% and instead showed a nice jump of 1.1% that month.
The US Session
- Canadian Retail Sales – Retail sales finally made a reversal and came back into positive territory in Canada during February after three straight declines in the previous three months. Retail sales MoM increased by 0.6% in February, beating expectations of 0.4%. Core sales also beat expectations of 0.2% and instead grew by 0.4% in February. This is the strongest reading for retail sales since July last year. The core retail sales which excludes autos for January was revised lower though, from 0.1% to -0.6%. These are really good numbers despite the negative revision to core sales in January, but that’s way behind now.
- Canadian ADP Non-Farm Employment Change – The ADP non-farm employment has been increasing nicely by around 35k during January and February. The pace of growth fell in March to 13.2k, although that’s still an increase in jobs.
- US Retail Sales – Retail sales jumped 1.6% higher in March in the US, beating expectations of a 0.9% increase for that month. Core retail sales jumped higher as well during March in the US. Expectations were for a 0.7% increase, but they jumped 1.2% higher. This is the largest increase in sales since September 2017. Retail sales control group increased by 1.0% against 0.4% expected. Prior month was revised lower though to to -0.3% from -0.2%. The increase in sales was really impressive this time, but I hope it continues.
- US Unemployment Claims – The US unemployment claims have been on a declining trend during the last couple of months. They were expected to increase slightly from 196k to 207k, but beat expectations coming at 192k, which is another positive piece of data.
- Philly Fed Manufacturing Index – This manufacturing index has been showing some weakness in the last several months, which tells us that manufacturing is in a soft spot globally, not just in Germany. In February it dipped into negative territory at -4.1 points but came back in March, as the Philly manufacturing index jumped to 13.7 points. Today’s report was expected to show a small decline to 11.2 points, but it declined further to 8.1 points for this month.
- US Flash Manufacturing PMI – The manufacturing PMI has also been on a declining trend in the last several months. Last month’s number was revised lower as well from 52.5 points to 52.4 points. Today though, this indicator is expected to reverse higher and improve, coming at 52.8 points, which is not much but it would be a good start.
- The trend has shifted to bearish
- The support levels have broken and have turned into resistance
- The 50 SMA is providing resistance too
- Fundamentals just turned bearish
The 50 SMA has turned into resistance for Gold this week
Earlier, we went short on Gold as the price was retracing higher after the negative manufacturing PMI from the Eurozone which hurt the sentiment. The main trend has shifted to bearish for Gold and the US retail sales report gave the USD a reason to rally and turned safe havens upside down. The retrace higher was also complete as stochastic shows. The previous support level has now turned into resistance at $1,275 and the 50 SMA (yellow) is also providing resistance, so it seems like a bearish reversing chart setup has formed in Gold now.
The manufacturing reports from Europe hurt the sentiment in financial markets earlier, which sent risk assets lower and safe havens higher. But the retail sales from the US and Canada showed a nice jump for March and February respectively which seems to have shifted the sentiment to positive once again, especially for the USD.