Previous Day's Market Highlights
Markets piled further misery onto the pound on Friday, with the inevitable announcement of the collapse of bipartisan Brexit talks the latest catalyst for downward pressure. Opposition leader Corbyn stated that “talks have gone as far as they can” and that Labour would continue to oppose the Brexit deal, further reducing the already slim chances of the Withdrawal Agreement being passed in the first week of June. The collapse of talks has resulted in more uncertainty for sterling, with the pound having already been pressured by the potential of a hardline Brexiteer replacing the Prime Minister in addition to a broader risk-averse market denting sterling’s appeal. This latest bout of uncertainty sent sterling to fresh 4-month lows on Friday, with the pound recording a 6th consecutive decline against the dollar, falling 0.7% to close just above $1.2700, while also recording the biggest weekly loss, 2.2%, against the dollar in just over 18 months. Against the euro, sterling fell for the 10th consecutive day, the longest losing streak since the inception of the single currency, dipping under €1.14 for the first time since mid-January.
Elsewhere on Friday, the euro slid by around 0.2% despite slightly more upbeat than expected inflation data. Figures showed headline CPI increasing at 1.7% on a year-on-year basis in April, unchanged from the previously released flash estimate. However, the core CPI figure, which strips out the effects of volatile food and energy prices, ticked up to 1.3%, above the flash estimate of 1.2%, and the highest level since April 2017. While an uptick in core inflation will be music to the ECB’s ears, markets remain cautious, with the data likely distorted by the effects of Easter. Focus will be on May and June’s releases to gauge whether this is a longer-term trend or merely a temporary increase.
Meanwhile, in the US, preliminary consumer sentiment figures from the University of Michigan unexpectedly rose to their highest level since 2004, with the index reading 102.4. Sentiment was boosted by strong 1st quarter economic growth along with low unemployment and increasing wages, however escalating US-China trade tensions may weigh on the index going forward. The dollar reacted positively to the data, with an increase in consumer sentiment likely to result in increased spending and thus higher economic growth. The greenback traded 0.2% higher against a basket of peers.
Other currencies were largely rangebound as the week drew to a close with reports of US-China trade talks being stalled. Both the Aussie and Kiwi dollars dipped by around 0.25% as market participants trimmed positions. Over the weekend, incumbent Australian Prime Minister Scott Morrison has won a surprising victory in Federal Elections, possibly alleviating some of the near-term pressure on the Aussie dollar.
Away from FX, equity markets ended the week on a cautious tone, with trade concerns still causing market jitters. In Europe, the pan-continental Stoxx 600 declined by 0.35%, while the US benchmark S&P 500 lost a shade under 0.6%. Finally, oil prices ended the week with modest declines, though both Brent and WTI were on track for a weekly gain of almost 2% with increasing Middle East tensions heightening supply concerns.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
A fresh week begins with a relatively quiet economic calendar, with no top-tier releases due from any major economy. Markets will however chew over a couple of second-tier releases, though neither has significant market-moving potential. Firstly, eurozone current account figures are expected to show a further widening of the current account surplus, to €29.5bln, a figure which would confirm the euro area as the economic bloc with the largest global current account surplus. This afternoon, markets will likely glance over the monthly Chicago Fed activity index, expected to decline to -0.33, a level which would be the lowest in 12 months. While such a decline is unlikely to spark major fears of an economic slowdown, the data may further cloud the picture when trying to gauge US economic performance.
Central bank speakers are likely to be of more interest to markets than economic data today, with the Fed’s Harker, Clarida and Williams likely to be the most impactful. Markets will be on the lookout for any comments relating to the monetary policy outlook ahead of the release of minutes from the Fed’s latest policy meeting on Wednesday. Other notable speakers include outgoing ECB Chief Economist Praet in addition to the BoE’s Broadbent, seen as one of the leading contenders to replace Governor Carney next year.
Looking ahead to the remainder of the week, the economic calendar is busy with several major events due. On the data front, markets are likely to pay significant attention to Thursday’s release of May’s flash eurozone PMI figures. Expectations are for the manufacturing sector to remain in contraction for a 4th consecutive month, while the services sector is expected to continue expanding at a modest pace. Markets will use the data to gauge both the divergence between the two industries in addition to examining whether euro area data has begun to bottom out. Other data highlights include CPI inflation from the UK (Weds), expected to show prices increasing above the BoE’s 2% target for the first time since December 2018, as well as retail sales figures from the UK and Canada. Moving to central banks, focus will be on Wednesday’s aforementioned release of minutes from the FOMC’s most recent policy meeting, with markets looking for an insight into future monetary policy decisions. Other notable events include Tuesday’s testimony from 4 Bank of England policymakers to the Treasury Select Committee in addition to minutes from the RBA’s latest meeting and a busy slate of Federal Reserve speakers. Finally, beginning Thursday, European voters will head to the polls in European Parliament elections, a full preview of which can be found here.
Today's Economic Calendar
|10:00am||EUR||Current Account (Mar)||29.5bln||26.8bln|
|1:30pm||USD||Chicago Fed Activity Index||-0.33||-0.15|
|2:30am (Tues)||AUD||RBA Meeting Minutes|