Market Drivers for April 16 2014

UK unemployment dips below 7%

Chinese data mixed

Nikkei 3.01% Europe .97%

Oil $104/bbl

Gold $1301/oz.

Europe and Asia:

CNY GDP 7.4% vs. 7.4%

CNY IP 8.8% vs. 9.1%

CNY Retail Sales 12.2% vs 11.9%

GBP claimant count -30K vs. -30K

GBP 6.9% vs. 7.1%

GBP Average earnings 1.7% vs 1.8%

EUR CPI 0.9% vs. 1.0%

North America:

USD Building Permits 8:30 AM

USD Capacity U/IP 9:15 AM

CAD BOC 10:00 AM

UK wage growth rose above the rate of inflation for the first time in 5 years sending cable soaring through the 1.6800 figure as unemployment dipped below the psychologically key 7% mark.

Average earnings index rose by 1.7% better than the 1.5% rate of inflation, allowing workers to outpace the cost of living expenses for the first time since 2009. Claimant count came in line at -30K and the unemployment rate dropped to 6.9% from 7.2% the month prior.

The beat in labor data numbers indicates that the UK economy continues to enjoy the best growth in the G-7 universe and clearly sends the BoE to the front of line in the race to hike rates amongst the advanced industrialized nations of G-7. Cable responded right away to the upbeat news as it burst through the 1.6800 barrier, but the pair remained below the yearly high levels of 1.6830 for the time being.

Still with so much positive momentum on its side, sterling is likely to make a run for fresh yearly highs and the longs may even press towards the 1.7000 level over the next several weeks. Although the BoE has expressed reservations regarding the strength of the pound, the central is unlikely to aggressively jawbone the currency lower – especially if it does not seriously affect growth going forward – as it provides a natural anchor for inflationary pressures.

Meanwhile in Asia, the 3% rally in the Nikkei helped fuel a move above the 102.00 level in USD/JPY. This occurred despite the escalation of tensions in Ukraine, but the market continues to ignore the conflict for now.

Also in Asia the data dump from China proved mixed, but provided some stability for the Aussie which was hammered badly on the slide in precious metals yesterday. The Chinese GDP printed in line at 7.4% which proved a relief to the market but Industrial Production continued to trend lower coming in 8.8% versus 9.1% eyed. On the other hand Retail Sales rose 12.2% from 11.9% forecast indicating that China continues to make steady transition from production led to consumption led demand.

The news out China makes clear that the rate of growth from the Middle Kingdom will continue to decelerate and that is likely to curb demand for commodities and cap any upside in Aussie for now. The pair has faltered ahead of the 9500 level and is likely to remain rangebound for the time being.

In North America today the market will get a look at some second tier housing and IP data that is not likely to make much of an impact on FX. Instead currencies may take their cue from equities and if US stock stage a rally USD/JPY is likely to test the 102.50 level to the upside.

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