Capital markets complacency dominated the week, with riskier assets continuing to grind higher. On Friday the Nikkei continued its climb, notching up another 3% climb. Commodity prices were under pressure for most of the week as the dollar made headwinds for tangible assets. Data released in the US at the end of the week, was somewhat counter to the solid numbers seen at the beginning of the month.
The dollar lost some ground on Thursday as worse than expected data in the US pushed interest rate differentials against the dollar. Housing starts, jobless claims, and the Philly Fed survey all reported worse than expected results. The one bright spot was declining inflation which saw gasoline prices accelerate deflation.
The Commerce Department released worse than expected housing starts, but building permits which reflect future starts were solid. According to the Commerce Department US housing starts declined 16.4% in April, dipping below the 1mm number. Building permits increased by 15.4%, showing there is potential life on the horizon. The decline was mainly a reflection of multifamily homes which plunged 37.8%.Housing has been a strong point in the US economic landscape, and next week’s existing home sales and new home sales data will go a long way toward shedding light on US spring sales.
The employment picture changed drastically on Thursday, after the Labor Department reported that initial jobless claims increased by more than 32K claims, above 360k for the first time since March. Economists surveyed had forecast 330,000 new applications last week. The four-week moving average of jobless claims, increased by 1,250 to 339,250.
On the inflation front in the US, CPI declined by .3% compared to the .1% fall expected by economists. The core increased by .1% which excludes food and energy. The bulk of the decline in CPI was in gasoline which fell more than 8%, while total overall energy prices declined in April by more than 4%.
Euro Takes a Dive
The Euro was under pressure for most of the week, as soft economic data in the Euro-zone saw France move into recession. The EUR/USD is poised to test the 1.28 level after the 5-day moving average crossed below the 20-day moving average. Momentum as reflected by the MACD is pointing to lower prices as the trajectory of the index moves lower.
Aussie on the Ropes
The Australian dollar continued to decline on the heels of last week’s interest rate cut. Investors are focusing on the lack of economic output in China, as a deterrent for Australian growth. Momentum is accelerating lower print at the lowest point in the past 6-months and poised to push the currency down to the .96 support level.
Next week the markets will be watching:
• Monday – May 20, 2013 – Japan leading Index (500 GMT)
• Tuesday – May 21, 2013 – German Producer Prices (600 GMT), UK Consumer Prices (830 GMT)
• Wednesday – May 22, 2013 – Bank of Japan Interest Rate Decision, US Existing Home Sales (1400 GMT)
• Thursday – May 23, 2013 – UK GDP (830 GMT), US New Home Sales 91230 GMT)
• Friday – May 24, 2013 – German IFO Survey (830 GMT), US Durable Goods (1330 GMT)