US Core Producer Prices Rise More Than Expected:
Producer prices showed an interesting result in March. The headline PPI rate came in cooler than expected at 0.7% on the month, compared to 1.6% in February. The consensus forecast was for a 1.0% climb.
However, if we look at the underlying “core” rate of PPI, it rose 0.3%, faster than February’s 0.2%, and beating expectations of a similar 0.2% climb in March. In the red box above, we see the gray bars show 4 straight months of modest rises in core rates.
The increase in the underlying rate came partly from higher car prices (0.9%), but other goods rose as well. The implication is that higher oil prices are seeping into the wider economy and pushing up the costs for other goods and services. Higher prices can work to slow the economy.
Bottom line, the inflationary pressures from higher commodities and energy prices are beginning to make their way into core prices. That should alarm the Fed, and if we see more of this – higher core inflation – in the CPI report, that could give the USD some lift as it would increase the pressure on the doves in the FOMC.
US Jobless Claims Shows Surge in Claims:
While higher wholesale prices can be an impediment to the economy, US jobless claims gave economists some worry as it posted a sharp increase.
Initial claims increased by 27K to a seasonally adjusted 412K in the week ended April 9th. The expectation had been for a much smaller 3K increase, and for claims to remain near their recent 380K levels.
Looking at the 4-week moving average of claims, we see some sideways action after falling below the 400K level. Those readings were consistent with about 200K new jobs the last 2 months, it would by unfortunate to see claims edge back higher. There may have been some volatility created by the way the data was collected since it had to do with the end of the quarter, so we should see if claims fall back down next week.
The expectation for April should still be for around 200K new jobs. The US labor market remains very loose, with the unemployment rate at 8.8% and about 13.5 million people total unemployed.
Still, the recent 2 non-farm payroll reports have shown some optimism for recovery, and economists are pinning their hopes for the rebound on an improving labor market that can help spur further consumer spending.
Retail sales rose 0.4% in March, though were up 0.7% if car sales were taken out of the equation, a slower pace than what we have seen recently.
Canada Manufacturing Sales, Motor Vehicles Sales Slump in February
In Canada, we had two reports showing some troubling signs for the real economy.
Manufacturing sales for February posted a 1.5% decline (or -C$729 million), a sign that the manufacturing sector in Canada was weaker than expected in the middle of the 1st quarter. It was up 4.4% in January.
From the Release: Sales decreases were mostly concentrated in the motor vehicle assembly, motor vehicle parts and the aerospace product and parts industries. Sales in the motor vehicle assembly industry fell 10.9% to $3.7 billion in February, following a 26.1% gain in January. The large rise in January reflected substantial gains in production at some plants, following weather-related slowdowns in December.
Inventories held by manufacturers edged down 0.3% in February to $61.6 billion, the first decrease in five months. The inventory-to-sales ratio increased from 1.29 in January to 1.31 in February. Despite the advance, the ratio has declined gradually over the past year.
Motor vehicle sales also disappointed forecasts, declining 0.6% compared to expectations of a 2.8% rise.
In January, new auto sales had climbed 3.2%. The decline was led by a 1.5% drop in sales of trucks. Passenger car sales actually advanced 0.4%. February therefore was a soft month for the Canadian auto industry.
One strong reason why is the strength of the Canadian Dollar which makes Canadian car exports more expensive to their souther US neighbors.
The USD/CAD had moved against the Canadian Dollar following the news, but the USD gains didn’t last too long. We have been trading in an upward sloping channel of late in the pair, and we retest the 200-period SMA in the 1 hour timeframe as we head into the NY afternoon trading session. Will this data further reinforce the statements from the Bank of Canada which point to the CAD’s strength being a headwind for the economy?
The dovish tone of the Bank of Canada this week has undermined the Loonie strength, as has the decline in oil from their peaks last week. However, the USD remains pressured on several fronts, and so the weaker Canadian data may be brushed aside for now.
For a technical analysis look at the USD/CAD, see the technical update: Reward to Risk Assessment and Position Sizing in a Short-USD/CAD Setup
Nick Nasad
Chief Market Analyst
FXTimes
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.
