Jumping on a Flight to Safety

Markets strike a risk-averse tone as US-China trade tensions persist resulting in safe-haven currencies being well-supported.

Previous Day's Market Highlights

Markets continued to trade in a relatively quiet manner on Wednesday, with risk-off sentiment emerging, as investors remained jittery over the prospects of a prolonged US-China trade war denting global economic growth. Both the Japanese yen and Swiss franc were well-supported, along with the US dollar, as markets rotated away from riskier assets into safe-havens. The greenback recorded a 3rd consecutive daily gain against a basket of peers, closing in on a fresh 2-year high. However, the dollar gaining against all majors barring the yen is a classic sign of a risk-off market, one that is purchasing dollars not due to US economic performance, but due to looking for safety. A further sign of deteriorating risk appetite was weakness in the Aussie and Kiwi dollars, which fell 0.2% and 0.5% respectively, with both typically trading as risk proxies for the global economy. 
Elsewhere, the Bank of Canada kept interest rates on hold at 1.75%, as expected, though struck a relatively positive tone. The BoC stated that incoming economic data suggests the slowdown in the first quarter of 2019 was temporary, with both economic growth and business investment having recently firmed. Furthermore, the BoC continued to strike a neutral policy tone, in contrast to other major global central banks, suggesting that future policy changes remain data dependent. For the loonie, which shed 0.25%, market participants were perhaps expecting more explicit signs of an upward revision to forecasts coming at July’s policy meeting hence the modest weakness. 
Turning to the pound, little in the way of political developments or economic releases left sterling meandering, with investors cautious due to ongoing uncertainties. The pound closed unchanged against the euro, while dipping 0.3% against the dollar due to the greenback’s rally. The single currency also traded lower, shedding 0.15% due to the dollar’s broad based strength. 
Away from FX, equity markets in both Europe and the US sank and Treasury yields rose due to anxieties over US-China trade. The pan-European Stoxx 600 equity index fell 1.4% to a 2-and-a-half month low, while the US benchmark S&P 500 lost a shade less than 0.7%. Meanwhile, Treasury yields fell to a fresh 20-month low, another classic sign of risk aversion. Finally, oil prices also slid on trade concerns, benchmark Brent and US WTI both losing more than 2%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1345 1.1776 1.1298 4.06%
GBP/USD 1.2635 1.3176 1.2605 4.33%
EUR/USD 1.1135 1.1263 1.1107 1.39%
GBP/AUD 1.8220 1.8882 1.8215 3.53%
GBP/NZD 1.9360 2.0021 1.9306 3.57%
GBP/CAD 1.7055 1.7728 1.6902 4.66%

Today's Market Highlights

Today’s main focus falls on US data releases, with most attention likely to fall on the 2nd estimate of 1st quarter GDP growth. Markets expect a modest downward revision to 3.1% growth, from 3.2%, on an annualised quarter-on-quarter basis. However, despite revisions to GDP giving a more accurate estimate of economic growth, the market impact is typically muted unless figures differ significantly from the initial release. Also eyed from the US this afternoon will be 1st quarter core PCE figures - the Fed’s preferred inflation gauge. Markets expect no revision to this figure, with prices increasing at 1.3% on an annualised QoQ basis in the first quarter. Other releases include weekly jobless claims, expected at 215,000, along with pending home sales figures for April. While resilient data releases will likely help the dollar find demand, the greenback will likely stay relatively well-supported as markets continue to seek a haven due to escalating geopolitical tensions. 
Elsewhere, no releases are due from the UK or eurozone, with focus set to remain on developments in the Westminster political bubble and the race to replace Theresa May as Prime Minister. Today’s only other notable release will be Canadian current account figures for the 1st quarter, expected to show the widest deficit since the 2nd quarter of 2016. 
Overnight, markets will have plenty of releases to chew over from Asia. From Japan, unemployment, industrial production and CPI for the Tokyo region are all due. Unemployment is likely to dip slightly to 2.4%, in line with trend and showing Japan at practically full employment, while CPI figures are expected to show prices increasing at 1.2% on a year-on-year basis. Positive releases may help underpin an already in-demand safe-haven yen. Meanwhile, from China, May’s official PMI figures are due, with expectations for data to show the manufacturing sector dipping into contraction for the first time since February. While the services sector is set to continue a strong pace of expansion, the data will be closely examined for the impacts of escalating trade tensions with the US.

Finally, turning back to today, the central bank speakers calendar is relatively busy. Markets will hear from the BoE’s Ramsden, Fed Vice Chair Clarida and BoC Senior Deputy Governor Wilkins throughout the day - any comments on the monetary policy outlook are likely to be of particular interest.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD GDP (Q1 - 2nd est. - annualised q/q) 3.1% 3.2%
1:30pm USD Core PCE (Q1 - 2nd est. - annualised q/q) 1.3% 1.3%
1:30pm USD Initial Jobless Claims 215k 211k
1:30pm CAD Current Account (Q1) -18.0bln -15.5bln
12:30am (Fri) JPY Unemployment Rate (Apr) 2.4% 2.5%
12:50am (Fri) JPY Tokyo CPI (y/y - May) 1.2% 1.4%