Volatility to Return After Easter Break?

The return from the long weekend sees markets stay in a holding pattern, with the euro broadly weaker after poor PMIs, ahead of Parliament’s return and a busy week of central bank meetings.

Previous Day's Market Highlights

The euro lost ground on Thursday, once again amidst low volatility, after a dismal set of PMI figures did little to convince markets that the bloc's economic soft patch is coming to a conclusion. PMI figures for both the manufacturing and services sectors fell short of expectations, with the latter likely of more concern with the sector having been relatively resilient in recent months. Services PMI fell to 52.5, short of the 53.2 forecast and the index's lowest level in 3 months. The manufacturing index also missed expectations, reading 47.8, remaining in contractionary territory (sub-50) for the 3rd consecutive month. Adding to concerns over the euro area economy will be the lacklustre manufacturing PMI from Germany, which remains firmly in contraction at 44.5. Over the course of the day, the euro lost around 0.5% against the dollar, falling to its lowest level in 2 weeks. 

Elsewhere, retail sales were the order of the day, with positive releases from the UK, US and Canada showing the consumer remaining upbeat and consumer spending continuing to increase. In the UK, retail sales increased at 1.1% on a month-on-month basis in March, the largest increase since November 2018, caused largely by mild weather boosting spending. However, the release didn't effect the pound, with markets beginning to focus on Parliament's return from recess and removing some risk before the Easter weekend. Sterling fell 0.25% against the dollar on Thursday, though gained 0.2% against the euro, wholly due to weakness in the single currency. Meanwhile, in the US, the dollar was well-supported after upbeat data, with the greenback adding 0.4% over the day. Retail sales increased at 1.6% in March, their fastest rate since September 2017, while initial jobless claims reached a fresh 50-year low of 192k, painting a relatively rosy picture of the US economy. From Canada, retail sales also beat expectations, increasing at 0.8% in February, though downward revisions to the previous release weighed on the CAD, with the loonie closing down by 0.25%. 

The long Easter weekend has seen little in the way of major economic releases or currency market volatility, with most major trading centres (barring the US and Japan) closed. Friday saw both US building permits and housing starts miss expectations, with the latter increasing at its slowest pace since May 2017, though neither release had a significant impact on the dollar. Markets were quiet once again yesterday, though the Canadian dollar did find some modest support after an oil price rally. In terms of data, the calendar was light, with only US existing home sales of note, which increased at a slightly below forecast 5.21mln.

Away from FX, equity markets gained on Thursday ahead of the long weekend, with both the pan-European Stoxx 600 and the US benchmark S&P 500 edging up by 0.5%. Markets were closed on Friday, with european bourses also closed on Monday. Despite being open, US markets did little on Monday amid thin trading volumes, with the benchmark S&P 500 adding just 0.1%. Finally, in commodities markets, despite ending last week on a quiet note, both Brent and WTI added more than 2.5% on Monday, rallying to fresh 6-month highs after the United States decided to scrap waivers allowing the purchase of Iranian crude. Such action is likely to further tighten supply in the oil market, adding to disruptions already seen from Venezuela, Libya and Nigeria.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1545 1.1787 1.1512 2.33%
GBP/USD 1.2985 1.3269 1.2976 2.21%
EUR/USD 1.1245 1.1323 1.1183 1.24%
GBP/AUD 1.8250 1.8731 1.8093 3.41%
GBP/NZD 1.9495 1.9562 1.9049 2.62%
GBP/CAD 1.7355 1.7789 1.7314 2.67%

Today's Market Highlights

Markets return from the Easter break to a relatively quiet economic calendar, with nothing in the way of tier 1 economic releases due. Perhaps of most interest will be this afternoon's US housing market data, after disappointing building permits and housing starts figures on Friday. Primary focus will likely be new home sales, expected to have increased by 650,000 last month on a month-on-month basis, a modest decline from the previous release. Also eyed will be the monthly house price index, with prices expected to increase at 0.3% on a month-on-month basis. Elsewhere, data highlights include wholesale sales figures from Canada along with consumer confidence data from the eurozone, though neither typically has a major market impact. Of more interest will be the overnight release of Australian CPI inflation figures for the first quarter. Expectations are for the data to show inflation at 1.5% on a year-on-year basis in Q1, well below the RBA's target level, possibly enough to tilt the RBA towards a rate cut towards the second half of this year. 

Looking ahead to the remainder of the week, after a welcome lull, Brexit is once again likely to come to the forefront of the news agenda, with Parliament returning from recess this afternoon. With cross-party talks aimed at finding a consensus for a way forward seemingly stalled, the Prime Minister is likely to become personally involved in negotiations with the Labour party this week. Though agreement of a way forward remains unlikely, the pound will remain sensitive to any Brexit-related news, including continued rumours surrounding the PM's future as Conservative party leader. Technically, moves in the pound appear biased to the downside, with cable (GBP/USD) closing last week below the recent ascending trendline support and under the key $1.30 level. 

Away from Brexit, the economic calendar is relatively busy, with enough to keep investors on their toes. The most likely sources of volatility stem from central bank meetings, with rate decisions due from Canada, Japan and Sweden throughout the week, all 3 central banks are expected to leave policy unchanged. Despite the expected lack of policy changes, markets will be given plenty of food for thought. The BoC's quarterly monetary policy report will be closely watched for any signs of further monetary policy tightening remaining on the table, though a further dovish shift to a more neutral policy stance is likely. Meanwhile, the BoJ's release of GDP and CPI forecasts will attract significant attention, with expectations that inflation forecasts will remain below the BoJ's 2% target through to the end of 2022 and markets continuing to question the BoJ's ability to return inflation to target with its limited policy arsenal. In terms of data, Friday's release of US Advance GDP for the first quarter is the main highlight, with investors looking for both the impact of the government shutdown as well as an unexpected increase in consumer spending. Markets are eyeing growth of 1.8% on an annualised quarter-on-quarter basis, broadly in line with trend growth levels.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm CAD Wholesale Sales (m/m) 0.4% 0.6%
2:00pm USD Housing Price Index (m/m) 0.4% 0.6%
3:00pm USD New Home Sales 0.65mln 0.67mln
3:00pm EUR Prelim. Consumer Confidence -7.1 -7.2