Previous Day's Market Highlights
The pound extended its recent slide on Wednesday, as optimism over a cross-party Brexit deal continued to fade and risk appetite decreased, with market participants still jittery over US-China trade tensions. Despite a lack of economic releases, sterling sank to the bottom of the G10 leaderboard, continuing its recent downtrend, as markets became more aware of the talks looking like a political charade than an attempt to broker a deal. The opposition Labour party confirmed that they would not be backing the Withdrawal Agreement Bill next month, unless the government made the changes they have requested. With the Bill now facing almost certain defeat, the question over the next steps is likely to become one of no deal or no Brexit, according to some Cabinet ministers. The uncertainty that this elongated process will cause, along with a risk-off feel in the market, saw the pound tumble to a 3-month low against the euro and dollar, with sterling losing 0.4% over the day after paring some of its losses.
Elsewhere, the euro also pared early losses after President Trump was reported to delay a planned decision on imposing tariffs on auto imports - a welcome boost to Europe’s struggling manufacturing sector. On the data front, the 2nd estimate of 1st quarter GDP was unchanged from the previous reading, reaffirming growth of 0.4% on a quarter-on-quarter basis, the fastest pace since the 2nd quarter of 2018. Meanwhile, the dollar traded largely unchanged against a basket of peers despite a disappointing retail sales release. Sales unexpectedly declined by 0.2% on a month-on-month basis in April, with the less volatile control group measure recording no sales increase at all. The disappointing report evidences the weak start to Q2 from the US consumer, likely having a detrimental impact on GDP growth due to the US’s consumer driven economy.
Inflation figures from Canada were also eyed on Wednesday, with headline CPI ticking up to 2% on a year-on-year basis in April, the highest reading since December 2018. However, the core CPI measure, which removes the volatile effects of food and energy prices, dipped to 1.5%, 0.1% below expectations. The release largely reaffirms the BoC’s monetary policy stance, with rates likely to remain on hold for the long-term future, and had little impact on the loonie. Overnight, labour market figures from Australia have disappointed markets, with an uptick in unemployment to 5.2% in April increasing the chances of an RBA rate cut. The RBA have stated that an upward trend in unemployment, combined with sluggish inflation, would be enough to warrant looser policy, with markets now pricing more than a 50% chance of a rate cut next month. The Aussie dollar’s losses have however been limited, with an increase in the participation rate, to 65.8%, along with better than expected employment change figures providing some positives. The Aussie currently trades 0.2% lower.
Away from FX, equity markets gained, as sentiment improved after President Trump’s decision to delay imposing auto tariffs. The pan-European Stoxx 600 added 0.4%, while the US benchmark S&P 500 gained a shade under 0.6%. Finally, oil prices rallied as supply concerns continued to tighten markets. Both Brent and WTI gained around 0.5% over the course of the day.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Thursday sees a relatively quiet economic calendar, with no top tier releases due from any major economy. While focus will of course remain with the two ongoing geopolitical issues, Brexit and US-China trade, markets will likely chew over a number of US data releases this afternoon. The primary focus will likely be housing starts and building permits figures for April, with both expected to increase at the fastest pace since January. Both data points tend to act as useful leading indicators for the performance of both the construction sector and the wider economy, with market participants likely to use the figures as an early gauge of 2nd quarter economic health. Also released will be weekly jobless claims, expected to decline for a 2nd consecutive week to a 1-month low, along with the Philadelphia Fed’s manufacturing index, expected to increase to 9.0, a 2nd straight increase. Resilient data will likely see the dollar well-supported, with markets upbeat on US economic performance at the start of the 2nd quarter.
Elsewhere, data is limited with no major releases due from the UK, where focus for the pound will remain on any breaking Brexit-related news flow with the Prime Minister due to meet backbench MPs today, who are expected to request May lays out s timetable for her departure. From the eurozone, trade balance figures may attract a cursory glance, though are unlikely to significantly impact price action. The story is similar with this afternoon’s only other notable data, from Canada, with neither manufacturing shipments or ADP employment change figures likely to impact markets, instead serving to confirm recent trends seen in other data releases.
Of more interest than the economic data is likely to be today’s busy calendar of central bank speakers, with BoC Governor Poloz the main focus. Markets will be looking for any comments on the monetary policy outlook, specifically in reaction to yesterday’s inflation release, with any unexpectedly hawkish comments likely to see the loonie relatively well supported. Elsewhere, markets will hear from the ECB’s Praet, de Guindos and Coeuré along with dovish BoE MPC member Haskel. From the Fed, where markets will be looking for a consistent message of patience on future policy decisions, markets will hear from centrist Brainard and dovish non-voter Kashkari.
Today's Economic Calendar
|10:00am||EUR||Trade Balance (March)||17.1bln||19.5bln|
|1:30pm||USD||Housing Starts (m/m - Apr)||1.205mln||1.139mln|
|1:30pm||USD||Building Permits (m/m - Apr)||1.298mln||1.288mln|
|1:30pm||USD||Initial Jobless Claims||220k||228k|