The euro has edge lower in the Tuesday session, as the pair is currently trading at the 1.09 line. On the release front, German Industrial Production declined 0.4%, better than the forecast of 0.6%. Germany’s trade surplus fell to a 3-month low, at EUR 19.6 billion. This was short of the estimate of EUR 21.2 billion. In the US, today’s highlight is JOLTS Job Openings, which is expected to drop to 5.67 million. On Wednesday, ECB President Mario Draghi will speak about monetary policy at the Dutch House of Representatives.
German manufacturing and industrial numbers continue to beat the forecasts. Industrial production in March declined 0.4%, but this was just a blip, as industrial production in the first quarter posted a respectable gain of 0.4%. On Monday, Factory Orders came in at 1.0%, above the forecast of 0.7%. An improvement in global economic conditions has revived the demand for German exports, notably cares and machinery. Germany releases Preliminary GDP for the first quarter on Friday, with the markets predicting a gain of 0.6%. If the GDP report is stronger than expected, the euro could make a push towards the symbolic 1.10 level.
There were no real surprises in the results of the French presidential election, save for the fact that Emmanuel Macron’s margin of victory for was larger than expected. The markets had priced in a decisive Macron win, so the euro has showed little response to the election results. Throughout the second round of the election campaign, opinion polls showed Macron with a comfortable 20-point edge, and in the end, he beat expectations, beating Marie Le Pen by a margin of 64% to 36%. Although Macron certainly “won big”, it should be noted that fully one third of French voters either abstained or voted a blank ballot as a protest vote. This means that Macron was viewed by many voters as a default choice, as he was seen as more palatable than Le Pen, head of the extremist right-wing party National Front. The markets won’t have much time to dwell on this election, with parliamentary elections slated for mid-June. Macron’s En Marche! party is barely a year old and is unlikely to win a majority, which would mean a power-sharing setup in parliament, likely between Macron’s party and the center-right. One important factor in the presidential election was that in both rounds, opinion polls were surprisingly accurate – the concern that many voters would vote Le Pen but wouldn’t admit it to the pollsters did not occur. (In the US election, a sizeable numbers of Trump voters were embarrassed to admit so before the vote, thus skewing opinion polls in favor of Hillary Clinton.) Similar to the presidential election, the parliamentary election is full of uncertainty, and opinion polls during the election campaign will be important as fundamental releases and should be treated as market-movers.
On Friday, the US released key employment numbers for March. The data was generally positive, and this means that a June rate hike has become more likely. Nonfarm Payrolls improved to 211 thousand, easily beating the forecast of 194 thousand. The unemployment rate fell to an impressive 4.4%, compared to the estimate of 4.6%. This was the lowest rate since May 2007. Wage growth remained weak at 0.3%, but still matched the forecast. Still, with such little slack in the labor markets, we should see wage growth start to move higher. If that happens sooner rather than later, the Fed will have to reconsider a third rate hike in 2017. As things stand now, two more moves is the likely scenario. The strong job numbers have cemented a rate hike in June, as the odds of a June hike continue to rise and are currently at 87%, according to the CME Group.
