Previous Day's Market Highlights
Sterling firmed on Tuesday as better than expected labour market data and hawkish comments from Bank of England policymakers helped the pound to find some support. Data showed wages, including bonuses, increased at 3.1% in April - the slowest pace since September 2018 but 0.2% above expectations. Other aspects of the labour market report were also positive, with unemployment remaining at 3.8%, a multi-decade low, and the employment rate increasing to 76.1%, the joint-highest on record. Overall, the report shows that the UK labour market remains tight, and close to full employment, remaining largely unaffected by Brexit-related uncertainties. Turning to the BoE, hawkish MPC member Saunders once again reiterated his view that rates may rise faster than the market currently expects, while Deputy Governor Broadbent stated that at a low policy rate it may be more appropriate to make faster rate adjustments. Both these factors helped to underpin demand for the pound, which gained 0.3% against both the euro and dollar over the course of the day, recording a 1st daily gain in 4 against the single currency.
Elsewhere, volatility was relatively muted, with other major currencies remaining confined to their recent ranges. The dollar traded largely unchanged against a basket of peers, ignoring a dip in producer price inflation. Headline PPI fell to just 1.8% on a year-on-year basis in May, the slowest pace of price increases in over 2 years. With PPI being a useful leading indicator for the more widely watched CPI figure, the soft release could be a precursor to relatively benign consumer price increases. Meanwhile, the single currency remained stubbornly within a tight $1.13 - $1.1330 range for the majority of the day, closing unchanged. The euro largely shrugged off the Sentix investor confidence gauge falling to a 3-month low.
Away from FX, equity markets in Europe gained, with the pan-continental Stoxx 600 adding 0.7%. Across the pond, the US benchmark S&P 500 slid 0.13% as some optimism over the recent postponement of US-Mexico tariffs faded. Finally, oil prices remained relatively well supported, with markets offsetting OPEC supply cuts with concerns over the longer-term health of the global economy. Benchmark Brent fell 0.2%, while US WTI crude added 0.2%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Today’s main event will be this afternoon’s release of US CPI inflation for May, which comes as the market continues to aggressively price in rate cuts from the Federal Reserve. Markets expect headline CPI to increase at 1.9% on a year-on-year basis, a modest decline from the previous release. Meanwhile, the less volatile core measure, which strips out energy and food prices, should remain unchanged, increasing at 2.1% on a year-on-year basis, leaving both measures broadly in line with their long-term averages. Despite this, President Trump continues to impart his economic views on anyone that will listen, proclaiming on Twitter (in capitals) that the US has “VERY LOW INFLATION” - a statement sure to be used in his next attack on the Fed. For the markets, the release is key to gauging the Fed’s next policy action ahead of next week’s FOMC meeting. A soft release is likely to weigh on the dollar, and see markets further increase their bets on the Fed cutting rates with a July cut currently a 79% chance.
Elsewhere, data is relatively limited, with no major releases due from either the UK or eurozone. For the pound, focus remains on the Conservative Party leadership contest, with frontrunner Boris Johnson due to officially launch his campaign today, ahead of tomorrow’s first round of voting. Meanwhile, the direction of the euro is likely to depend on a host of ECB speakers - including President Draghi, Vice President de Guindos and Governing Council Member Coeuré. The policymakers are likely to strike a relatively dovish tone, broadly in line with last week’s ECB meeting where Draghi placed heavy emphasis on the available policy headroom should further easing measures be required.
Overnight, focus will shift to Australia and the release of monthly labour market data. The labour situation remains key for the RBA’s next policy move, with a continued uptrend in unemployment likely to result in a further loosening of monetary policy. Expectations are for unemployment to tick down to 5.1%, while the employment change figure should show a net increase of 17,500 jobs. An upbeat release may underpin the Aussie dollar as markets begin to reprice their expectations for RBA monetary policy - a 25bps rate cut is currently fully priced in by August.
Today's Economic Calendar
|1:30pm||USD||CPI (y/y - May)||1.9%||2.0%|
|1:30pm||USD||Core CPI (y/y - May)||2.1%||2.1%|
|2:30am (Thurs)||AUD||Unemployment Rate (May)||5.1%||5.2%|
|2:30am (Thurs)||AUD||Employment Change (May)||17.5k||28.4k|