The pace of Chinese growth set the tone for the Asian session with first quarter GDP coming in above estimates of 7.3% at 7.4%. Albeit economic expansion falling to an 18 month low, retail sales and industrial production point to a stabilization in the economy. Retail sales saw a gain of 12%, above consensus of 11.9% while industrial production rose 8.8% year-on-year for March.  Despite analysts downgrading the growth forecast for China to 7.4% for 2014, Chinese Premier, Li Keqiang have reassured markets that Beijing will continue to monitor the economy closely and provide accommodation when warranted, as evidenced in early April where tax breaks and infrastructure spending were introduced.  It is a fine line that Beijing will have to walk as there is growing concerns that China’s credit fuelled growth model has reached its limits and the fear of a real estate bubble bust due to overbuilding and oversupply.
Consumer prices in the euro zone rose at 0.5% on an annualized basis in March, while the core reading came in at 0.7% year-on-year, missing forecast of 0.8%, its lowest level since November 2009.  Inflation is now flirting with the ECB’s danger zone of below 1% for six consecutive months, fuelling speculation that the central bank will deploy unconventional measures to ensure that the euro zone does not fall victim to deflation. The euro remains resilient above the 1.3800 handle as it looks to target near term resistance at 1.3868 which would open the door to 1.3900.
Cable has surged past the 1.6800 handle on the back of positive employment data where a surprising 239,000 jobs were added and the unemployment rate has eased to a five year low of 6.9%, falling below the threshold set by the Bank of England of 7%. Fuelling further support for the pound was the release of average earnings which for the first time since 2013 has climbed to 1.7% for the three months leading to February, matching the inflation rate.  With inflation running at 1.6% in March, this would suggest that wages may ascent pass inflation, albeit at a modest pace.
As we head into the North American session, the focal points for markets today will be Federal Reserve Chair’s Yellen first speech on monetary policy, and the Bank of Canada interest rate decision.  Yellen is likely to discuss the health of the labor market, appraise inflation and reiterate her argument that trepidation that stability in financial markets is the responsibility of regulatory, not monetary policy.  In economic data, housing starts for the month of March increased 2.8% and February’s print was revised upward to 1.9% from a 0.2% fall.  The housing market has been under pressure from higher mortgage rates and rising home prices which have kept buyers on the sidelines. On the docket later in the day will be the release of the Fed’s Beige Book.
The Canadian dollar has been on the defensive as it awaits the Bank of Canada interest rate decision, monetary policy report and accompanying press conference.  Although the central bank is anticipated to maintain its neutral stance, there has been a positive shift in economic data since the last meeting, with manufacturing sales, retail sales, CPI, GDP and employment all registering above estimates.  Accordingly, Poloz and company will be cautious in its tone as it prefers a weaker loonie, especially given the 4% rally posted by the Canadian dollar since March.  On a technical basis, support is seen at 1.0936 for USD/CAD while resistance is located at the 50 day moving average at 1.1055.
Further reading:
US housing data slightly below expectations in March
Consumer prices in the euro zone
