Where Has All The Volatility Gone?

The dollar lead the pack yesterday in quiet markets as volatility is nowhere to be found.

Previous Day's Market Highlights

Despite muted market volatility in almost all of G10 FX, the dollar was the best performing major currency on Thursday as the greenback was boosted to its best daily gain in a week by a combination of upbeat data and rising Treasury yields. Both producer price inflation (PPI) and weekly jobless claims numbers beat expectations, with the latter falling below 200,000 to its lowest level since late-1969, a upbeat sign showing a relatively tight labour market. The former was also positive, showing producer prices increasing at 2.2% on a year-on-year-basis, the most in 5 months, likely an indicator of increasing consumer prices in the coming months. Over the day, the greenback gained 0.15% against a basket of peers. 
Elsewhere, market movement was also muted for both the pound and the euro, with a lack of data releases and an absence of news flow resulting in little market interest in either currency. Commodity currencies were however slightly more volatile, with the Aussie, Kiwi and Canadian dollars all falling by around 0.4%. While the loonie’s fall was largely down to a decline in oil prices, both the Aussie and Kiwi fell as global risk appetite seemed to wane. In the longer-run, continued low volatility, as has been seen recently, along with generally high risk appetite, could be seen as a dangerous cocktail, making markets vulnerable to unexpected news and making sharp changes in sentiment more likely. 
Away from FX, equity markets were also subdued with both the pan-European Stoxx 600 and the US benchmark S&P 500 closing unchanged, largely due to anxiety ahead of the beginning of Q1 earnings season today. Finally, as mentioned, crude prices slipped as a rise in US inventories pushed down prices. Both Brent and WTI fell, pulling back from 5-month highs, with the latter losing more than 1%. 

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1570 1.1787 1.1463 2.75%
GBP/USD 1.3060 1.3311 1.2976 2.52%
EUR/USD 1.1285 1.1448 1.1183 2.31%
GBP/AUD 1.8327 1.8785 1.8229 2.96%
GBP/NZD 1.9403 1.9512 1.8960 2.83%
GBP/CAD 1.7460 1.7795 1.7327 2.63%

Today's Market Highlights

The week concludes with another relatively quiet economic calendar, teeing up a further day of limited market movement. Today’s main highlight will likely be this afternoon’s preliminary consumer sentiment figures from the University of Michigan, expected to slip slightly to 98.0 from 98.4. With the US being a consumer-driven economy, any changes in sentiment will attract significant attention as markets attempt to asses the potential follow-through impacts on spending and economic activity. 
Elsewhere, the UK’s economic calendar is bare and, with Parliament now in recess until after Easter, any Brexit-related news may also be thin on the ground. From the eurozone, focus will fall on this morning’s industrial production figures, expected to decrease at 0.6% on a month-on-month basis. The industrial and manufacturing industries have been the main causes of the bloc’s current economic slowdown, hence today’s figures will be closely watched for any signs of further soft economic activity. Finally, both the ECB’s outgoing Chief Economist Praet and the BoC’s Lane are due to speak this afternoon. 
Looking ahead to next week, the calendar is a little busier, with the primary focus set to be on labour market, inflation and retail sales figures from the UK. Markets will want to see the labour market remaining relatively tight, and be looking to examine the impact of Brexit-related uncertainty on the other measures. Elsewhere, highlights include retail sales from the US and Canada, minutes from the RBA’s latest policy meeting and Chinese GDP figures for the first quarter of this year.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00am EUR Industrial Production (y/y) -1.0% -1.1%
10:00am EUR Industrial Production (m/m) -0.6% 1.4%
3:00pm USD Prelim. University of Michigan Consumer Sentiment Index 98.0 98.4