Previous Day's Market Highlights
The Bank of England kept monetary policy unchanged on Thursday, as expected, though struck a modestly hawkish tone. The BoE’s Monetary Policy Committee voted unanimously to keep interest rates on hold at 0.75%, though maintained their tightening bias, emphasising the need for “gradual and limited” rate increases going forward to keep inflation in check. Turning to the Bank’s economic forecasts, expectations for GDP growth were revised up for the duration of the forecast horizon, with expectations for the economy to grow 0.2% faster next year than previously thought. Inflation forecasts were kept largely unchanged, barring a 0.6% downward revision to next year’s figure, though the BoE indicated that CPI would remain above target at the end of the forecast horizon, signalling that more than one rate hike would be necessary to keep price increases in check. Governor Carney re-emphasised this message at his press conference, commenting that more withdrawal of stimulus is necessary, and more hikes needed than current market pricing, should the Bank’s forecasts prove correct - emphasising the BoE’s view of the market being too relaxed about the prospect of further rate increases. Markets however largely ignored Carney’s relatively hawkish and upbeat tone, with the pound drifting along largely unchanged throughout the press conference, perhaps an early sign of Carney’s waning influence on markets in light of his January 2020 departure. Over the course of the day, sterling dipped 0.15% against the dollar, the first daily loss for a week, while gaining 0.1% against the euro, the 3rd consecutive daily gain.
Elsewhere, PMI figures were once again in focus, with manufacturing data for the eurozone showing the sector remained in contraction in April for a 3rd consecutive month, with the PMI figure reading 47.9, though brighter news was to be found from Italy and Spain, where the manufacturing PMIs reached their highest levels in 4 months. The euro remained within a familiar range however, losing around 0.1% against the dollar, largely ignoring the data releases. PMI data was also released from the UK, where data showed the construction industry bouncing back into expansionary territory for the first time since January, though the data was largely ignored by markets with focus falling on the BoE’s rate decision. Meanwhile, from the US, weekly jobless claims remained at 230,000 for a 2nd consecutive week, though seasonal factors relating to Easter may be playing a part in distorting the figures. Of more interest were factory orders, which increased by 1.9% in March, the highest level in 7 months and erasing February’s decline. The dollar gained ground over the day, adding 0.25% against a basket of peers as markets reacted to the above-forecast data in addition to scaling back bets on the Fed cutting rates this year.
In other markets, equities on both sides of the Atlantic chalked up losses. The pan-European Stoxx 600 lost 0.6%, with most major bourses and sectors closing in negative territory. Across the pond, US markets lost ground, continuing their decline after the Fed pushed back on rate cuts, with the benchmark S&P 500 losing 0.2%. Finally, oil prices tumbled, shrugging off a clampdown on Iranian imports and concerns stemming from escalating political tensions in Venezuela. Brent fell by around 2.5%, reaching the lowest level since early-April and briefly trading below $70bbl. WTI also fell, losing more than 3% to trade at the lowest level since 1st April.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
The week concludes with a relatively busy economic calendar, with attention centring on the monthly US labour market report, due to be released this afternoon. Headline nonfarm payrolls are expected to remain broadly in line with March’s figure, showing the US economy added in the region of 185,000 jobs last month, broadly in line with the 3-month average of 180,000 - though any revisions to the previous two months’ data will also be eyed. Also released will be average hourly earnings, expected to increase at 3.3% on a year-on-year basis, in addition to the unemployment rate, expected to hold steady at 3.8%. Primarily, markets are likely to focus on wage increases and the participation rate, expected at 62.9%, as the US economy remains in a late stage of the economic cycle. The report is likely to show the US labour market remaining relatively tight, with a shrinking labour pool putting upward pressure on wages though possibly denting the headline payrolls figure due to a lack of available labour to fill open vacancies.
Elsewhere, markets will have plenty of other data points to focus on. From the UK, services PMI figures are expected to show the industry bounced back into expansion in April, though at a rather sluggish pace, with the index expected at 50.5 - just above the 50.0 barrier between expansion and contraction. Investors will also be focusing on the services industry in the US, where ISM non-manufacturing PMI figures are expected to rebound from last month’s 50-month lows, with the index set to climb to 57.0. From the eurozone, markets will focus on flash CPI inflation figures. Data is expected to show prices increased at 1.6% on a year-on-year basis in April, two-tenths of a percent above the previous release. Core inflation, which strips out volatile food and energy prices, is also expected to increase, to 1.0% from 0.8%, though this would continue to represent relatively benign inflation and will give the ECB little cause to change tack.
Meanwhile, the central bank speakers calendar is as busy as the data calendar today, with 8 Federal Reserve policymakers due to speak throughout the afternoon and evening. Market participants are likely to focus on policymakers sticking to a similar script, clarifying the FOMC’s decision to keep rates on hold and strike a relatively neutral tone on Wednesday. Any divergence from Wednesday’s policy statement will be closely watched. Markets first hear from voting member Evans, before speeches from Vice Chair Clarida, New York Fed President Williams and Board Member Bowman throughout the evening. Overnight, dovish voter Bullard will speak alongside San Francisco Fed President Daly, Dallas Fed President Kaplan and typically hawkish Cleveland Fed President Mester at a panel-style event.
Looking to the week ahead, the economic calendar is relatively sparsely populated. Primary focus is likely to be on the antipodean central banks, with expectations mounting that both the RBA (Tues) and RBNZ (Weds) will cut interest rates, or at the very least strike a dovish tone, laying the groundwork for cuts in the near future in light of sluggish inflation. Economic data is limited, with the most impactful releases coming on Friday in the shape of CPI from the US, labour market data from Canada and the 1st estimate of UK GDP growth in the first quarter. Markets in the UK will be closed on Monday for a bank holiday.
Today's Economic Calendar
|9:30am||GBP||Services PMI (Apr)||50.5||48.9|
|10:00am||EUR||Flash CPI (y/y - Apr)||1.6%||1.4%|
|10:00am||EUR||Flash Core CPI (y/y - Apr)||1.0%||0.8%|
|1:30pm||USD||Nonfarm Payrolls (Apr)||185k||196k|
|1:30pm||USD||Unemployment Rate (Apr)||3.8%||3.8%|
|1:30pm||USD||Average Hourly Earnings (y/y - Apr)||3.3%||3.2%|
|3:00pm||USD||ISM Non-Manufacturing PMI (Apr)||57.0||56.1|