CHINA: Country Wrap: PMI Services Dip in April
- April's PMI services unexpectedly dipped in April in signs that the US tariff war is hurting. The CAIXIN PMI services had printed above 51 for six successive months and market expectations were for a continuation of this theme and a print of +51.8. April's result of +50.7 is the lowest since September and could be an early warning sign that the economy is slowing quicker than first thought. The government's official GDP growth forecast of 5% may be under threat and could bring about further policy intervention to support what looks like softening growth. The details within today's release show a modest uptick in employment from +48.6 to +49.2; yet still in contraction and prices charged relative to last month rose. (source MNI Market News)
- Hong Kong authorities sold a record HK$60.5 billion of the local dollar to defend the foreign-exchange peg as the greenback's slide threatened the currency's trading band. The intervention helped dampen Hong Kong's borrowing rates and may also help shield the economy from US tariffs, with the HKMA's sales expected to drive up its aggregate balance and provide more firepower to defend the currency. The HKMA's actions are seen as efforts to limit the currency's moves within its 7.75-7.85 per dollar trading band, with further intervention expected on the strong side of the band given the greenback weakness trend. (source HKMA via BBG)
- In their first trading day back post the five day Labour Day holidays, China's major bourses all rose as expectations that the US trade war could ease. The equity gains are after Treasury Secretary Scott Bessent's said the US could see some "substantial progress in the coming weeks" in trade talks with China and President Donald Trump's suggesting that said he is willing to lower tariffs on China at some point. China's Shenzhen Composite lead the way as the index rose +1.90% whilst Shanghai and CSI 300 were up +0.95%. The Hang Seng was strong today also rising +0.65%.
- Yuan Reference Rate at 7.2008 Per USD; Estimate 7.2465
- Bonds were very quiet today with the CGB 10YR flat at 1.63%
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AUSSIE 10-YEAR TECHS: (M5) Strong S/T Bounce
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.915 - High Apr 4
- PRICE: 95.860 @ 16:42 GMT Apr 04
- SUP 1: 95.420/95.300 - Low Feb 13 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.640 - 1.0% 10-dma envelope
Aussie 10-yr futures extended a recent strong bounce through to the Friday close, putting prices through the top end of the recent range. The confirmed breach of 95.851, the Dec 11 high on the continuation contract, reinstates a bull cycle and focuses attention on resistance at 96.207, a Fibonacci retracement point. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
USDCAD TECHS: Bearish Structure
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4308 50-day EMA
- RES 1: 1.4242 High Apr 4
- PRICE: 1.4196 @ 17:10 BST Apr 4
- SUP 1: 1.4028 Low Apr 3
- SUP 2: 1.3986 Low Dec 2 ‘24
- SUP 3: 1.3944 61.8% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 4: 1.3894 Low Nov 11 ‘24
USDCAD rallied Friday, but remains lower on the week after Thursday’s downleg. The move down has confirmed a clear reversal of the bull cycle between Sep 25 ‘24 and Feb 3. Price is through a key support at 1.4151, the Feb 14 low. This signals scope for an extension towards 1.3944, a Fibonacci retracement. On the upside, key short-term resistance is seen at 1.4308, the 50-day EMA.
CANADA DATA: Unexpected Jobs Contraction Boosts Implied April BOC Cut Chances
Canadian employment unexpectedly contracted in March, falling by the most since January 2022 at -32.6k (+10.0k expected, +1.1k prior) in a sign that the trade war with the US is spilling over increasingly into the "hard" data. The unemployment rate ticked up 0.1pp to 6.7%, in line with expectations and below the November 6.9% high, though unrounded it rose from 6.55% to 6.71% - the largest increase since November.
- The drop in employment was largely due to a 62.0k drop in full-time positions (after -19.7k, the 2nd straight drop), with part-time up for the 4th consecutive month at 29.5k (after 20.8k prior) - that mix is clearly indicative of hiring uncertainty among firms.
- The monthly full-time drop was the 2nd largest since the pandemic lows in the labour market (April 2020). Goods producing jobs fell by 12k (2nd consecutive decline), while services shed 21k (wholesale/retail trade and Information, culture and recreation led losses).
- The participation rate dipped 0.1pp to 65.2%.
- Wages were soft, dropping 0.2% M/M for the first drop since November, with the Y/Y rate slipping to 3.6% from 3.8% prior. The rise in permanent employees' wages of 3.5% Y/Y was well below the 4.1% expected (4.0% prior).
- Market-implied probability of an April BOC rate cut rose to as high as 68% after the data before settling the day at around 55%. That compares to 40% prior to Wednesday's US tariffs announcement.
