Previous Day's Market Highlights
Sterling continued its recent declines as a fresh trading week began, with continued political uncertainties resulting in the pound finding little in the way of support. A couple of factors can be marked out as catalysts for the pound’s decline. Firstly, the ongoing Conservative Party leadership contest is likely to result in Boris Johnson becoming Prime Minister, a risk that the market may have been pricing in. Secondly, overnight, reports broke that Chancellor Philip Hammond would be prepared to resign over Theresa May’s proposed spending plans, sparking further uncertainty in an already cloudy political landscape. These factors combined saw the pound record a 5th consecutive daily loss against the dollar, its worst run since May, losing 0.4% on Monday and falling to a year-to-date low (excluding the Jan flash crash) - $1.2511. It was a similar story against the euro, with sterling falling 0.6%, tumbling to a fresh 6-month low at the €1.1141 mark.
Elsewhere, the euro firmed, gaining around 0.1% after better than expected wage growth figures. Data showed wages increased at 2.5% on a year-on-year basis in the first quarter, the fastest pace in over 10 years. This data point should be a positive for the ECB, with rising wages likely to result in an increase in inflationary pressures going forward. Meanwhile, the dollar traded largely unchanged, with markets quiet ahead of Wednesday’s FOMC policy decision. A couple of notable data points were released however, with both softer than expected. The New York Fed’s manufacturing index fell to -8.6, the biggest 1-month fall on record and the lowest level since October 2016, possibly sparking concerns of a broader manufacturing slowdown across the US. The NAHB homebuilders survey also showed les optimism, falling a couple of index points to 64.0.
Overnight, the Aussie dollar has shed 0.2% after minutes of the RBA’s latest policy meeting portrayed a relatively dovish message. Policymakers agreed it is “more likely than not” that further policy easing will be appropriate, with the labour market set to be “particularly important” when deciding further policy changes. The dovish message should not come as too much of a surprise to markets, which have fully priced in two 25bps cuts for the remainder of the year. Also overnight, the yen has firmed, adding around 0.2%, with the safe haven finding demand after reports of the US sending around 1,000 troops to the Middle East.
In other markets, equities on both sides of the Atlantic were muted, with volumes low ahead of this week’s Fed meeting. In Europe, the pan-continental Stoxx 600 closed unchanged, while the US benchmark S&P 500 gained a shade under 0.1%. Finally, oil prices declined on Monday, with economic concerns outweighing tensions in the Middle East. Global benchmark Brent lost 1.75%, while US WTI crude slipped by 1.1%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Focus will be on a number of economic releases from the eurozone today, though markets are likely to remain hesitant ahead of tomorrow’s FOMC policy decision. Firstly, markets will look over final eurozone CPI figures for May, expected to remain unchanged from the previously released ‘flash’ estimates. Expectations are for headline CPI to have increased at just 1.2% on a year-on-year basis last month, while core CPI is set to be similarly sluggish, increasing at just 0.8% year-over-year. With benign inflation readings widely expected, including the month-on-month measures increasing at their slowest pace since January, market impact may be limited, though questions over the ECB’s ability to stimulate the eurozone economy with their limited policy toolbox are likely to persist. Also due are the monthly ZEW sentiment surveys. Expectations are for both German and eurozone economic sentiment to fall to their lowest levels since February, at -5.8 and -3.6 respectively. A release in line with expectations would show sentiment remaining firmly in pessimistic territory in June, possibly resulting in a weaker euro as the economy struggles to recover from an early-year slowdown.
Elsewhere, the Conservative Party leadership contest continues with a second ballot of MPs this evening, with candidates requiring at least 10% of the vote (33 MPs) to progress to the next round. A TV debate among the remaining candidates is also due to be held this evening, though is likely to be of little interest to financial markets. Meanwhile, for the dollar, May’s building permits and housing starts figures are due, though are likely to be largely ignored by the markets as the FOMC begin their 2-day policy meeting ahead of tomorrow’s announcement. Markets expect a relatively dovish message from the Fed tomorrow, hence some positioning in the dollar may occur today.
Finally, not to be outdone by a busy data calendar, central bankers continue the ECB’s Annual Forum on Central Banking today. Markets will hear twice from ECB President Draghi, with the most interesting point of the day set to be this afternoon’s monetary policy panel discussion between Draghi, BoE Governor Carney and former Fed Chair Yellen. Throughout the day, speeches from ECB Vice President de Guindos and new Chief Economist Lane are due. Markets will closely examine all comments for any hints of future monetary policy shifts, especially those from the ECB after a relatively dovish message at their last policy meeting.
Today's Economic Calendar
|10:00am||EUR||German ZEW Survey - Economic Sentiment (Jun)||-5.8||-2.1|
|10:00am||EUR||Eurozone ZEW Survey - Economic Sentiment (Jun)||-3.6||-1.6|
|10:00am||EUR||Final CPI (y/y - May)||1.2%||1.2%|
|10:00am||EUR||Final Core CPI (y/y - May)||0.8%||0.8%|
|1:30pm||USD||Building Permits (m/m - May)||1.29mln||1.29mln|
|1:30pm||USD||Housing Starts (m/m - May)||1.24mln||1.235mln|