Previous Day's Market Highlights
Sterling began a fresh trading week on the back foot after data showed the UK economy contracted for a second consecutive month in April. GDP for April showed contraction of 0.4%, worse than the 0.1% contraction expected, representing the steepest monthly fall in GDP since March 2016. The UK’s rolling 3-month average growth rate is now just 0.3%, with the lacklustre release pointing to stagnation, or even contraction, over the second quarter as a whole - a fact that is backed up by recent poor PMI surveys. The economic contraction came due to planned car plant shutdowns around the expected UK-EU exit date, resulting in a 24% month-on-month decrease in auto production - the biggest fall on record. Sterling was weighed down by the GDP release, in addition to markets beginning to price in the risk of a no-deal advocating candidate winning the Conservative Party leadership contest which formally began on Monday evening. The pound lost 0.15% against the euro over the course of the day, bouncing off a fresh 5-month low. Against the dollar, sterling lost 0.3%, falling to a 1-week low just above the $1.2650 handle. Sterling largely ignored hawkish comments from BoE policymakers Haldane and Saunders, with both reiterating their view that rates may have to increase faster than markets currently expect.
Elsewhere, the dollar recorded its 1st gain in 3 days, adding 0.15% against a basket of peers, recovering its losses after a poor labour market report as risk sentiment improved after President Trump’s announcement that proposed tariffs on Mexican imports would be postponed. Data was relatively limited on Monday, though the monthly JOLTS job openings survey showed 7.45mln vacancies at the end of April - showing availability of jobs is not an issue for the US labour market. Meanwhile, the euro held steady, with a lack of data releases contributing to a quiet day for the single currency. The Canadian dollar was also largely unchanged, with markets ignoring both housing starts and building permits figures. Both releases were relatively upbeat, the latter showing a record 9.3bln CAD worth of permits issued in April.
In other markets, equities on both sides of the Atlantic gained, boosted by the prospects of a Fed rate cut as well as improving risk sentiment. In Europe, the pan-continental Stoxx 600 added 0.2%, while London’s FTSE 100 gained 0.6%, benefitting from a weaker pound. In the US, the benchmark S&P 500 gained 0.47%, aided by sizeable M&A activity in the aerospace sector. Finally, oil prices held steady as Saudi Arabia and Russia discussed further supply cuts. Global benchmark Brent added 0.15%, while US WTI crude gained 0.5%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Today’s main data release comes from the UK, with labour market data due at 9:30 this morning. While the labour market has recently been the UK economy’s bright spot, seemingly unaffected by Brexit-linked uncertainties, markets expect some softening this month. Wage growth is expected to moderate, with average earnings (including bonuses) set to increase at 3.0% on a 3-months-on-year basis, a 0.2% fall from the previous release. A release in line with forecasts would represent the slowest pace of wage increases since August 2018, with the lower wage pressures likely to further reduce the already slim chances of a BoE rate hike this year. Markets will also focus on the unemployment rate, set to remain at 3.8%, the lowest level since 1974, as well as the claimant count change. Barring the key economic data, sterling traders will also be keeping a keen eye on the Conservative Party leadership contest, ahead of the first round of voting on Thursday.
Elsewhere, markets will focus on this afternoon’s US PPI figures, with the data being a useful leading indicator for tomorrow’s more widely-watched CPI release. Markets expect producer prices to have increased at 1.9% on a year-on-year basis in May, a pace which would be the slowest in 3 months. The less-volatile core PPI measure is expected at 2.3% YoY. A softer release may pave the way for a disappointing CPI figure tomorrow, thus leading markets to further increase their bets on the Fed cutting rates. Next week’s FOMC meeting will be closely watched for any signs of the Fed adopting a more accommodative policy stance, though a cut next week is extremely unlikely. From the eurozone, market participants may glance over this morning’s investor confidence figures, though the data is expected to confirm a continued deterioration in eurozone economic sentiment.
Turning to central banking, a host of Bank of England policymakers will be in the limelight today. Markets are due to hear from external MPC member Tenreyro this morning before external member Saunders and Deputy Governor Broadbent appear before the Treasury Committee later on. The latter two policymakers will be testifying to Parliament as the BoE seek to extend their terms on the MPC. Any comments on monetary policy, especially of a hawkish nature, will be closely watched. Overnight, markets will hear from the RBA’s Kent, with comments regarding the policy outlook of particular interest after last week’s 25bps interest rate cut.
Today's Economic Calendar
|9:30am||GBP||Average Earnings - Inc. Bonus (3m/y - Apr)||3.0%||3.2%|
|9:30am||GBP||Unemployment Rate (Apr)||3.8%||3.8%|
|9:30am||GBP||Claimant Count Change||24.7k|
|1:30pm||USD||PPI (y/y - May)||1.9%||2.2%|
|1:30pm||USD||Core PPI (y/y - May)||2.3%||2.4%|