29 May 2020

Market Brief - US economic data trumps White House concers

James Dazeley

Dealing team

Even amid political and international trade concerns, the USD ended last week strongly.

Today's data releases
  Key levels
    Support Resistance
No major data releases GBP/USD 1.3657 1.4070
  GBP/EUR 1.1186 1.1400

Market overview

Capping off a four-week winning streak, the USD benefited as a round of solid U.S. economic data set the stage for the upcoming Federal Reserve policy meeting this week. A gauge of consumer sentiment rose to its highest since 2004, with a sub-index showing a rise in inflation expectations; a separate report showed industrial production had surged 1.1% in February, pushing up capacity utilization, while a third report showed job openings in the U.S. increased by 645,000 to a record 6.31m, adding to perceptions of a vibrant economy. 

 

The surge in January job postings may help explain February’s addition of 313,000 workers to employers’ payrolls, the biggest gain since mid-2016. While wages cooled last month, pay might start increasing at a faster pace as the economy continues to expand and approaches full employment. Indeed, the JOLTS ‘quits’ rate eased only marginally to 2.2% in January from December’s 12-year low of 2.3%, suggesting workers are confident that they will be able to find another job.                                                                                                                                                  

Join our dial-in with Chief Economist Phil Shaw

Tuesday 20 March 10:00 GMT
Prepare for an impending rate rise in the US and a two-day EU summit the next day by joining our UK chief economist for analysis of the economic outlook.

The week ahead

This week’s UK data calendar is jam-packed. Firstly, we have inflation figures for February on Tuesday. Alongside Brexit related news, the inflation figures could be an important driver of Sterling, with our forecast for the targeted inflation measure to drop from 3.0% to 2.7%, its lowest level since April 2017. Meanwhile, we will get both labour market figures and public finances data simultaneously on Wednesday, with retail sales following on Thursday. Investors will also be preparing for the BOE meeting on Thursday. Though the BoE is not expected to raise interest rates, a hawkish stance combined with any UK-positive news from the EU leaders summit could provide a boost for the pound.

 

Across the pond, US data releases include existing home sales on the Wednesday, flash PMIs and jobless claims figures on the Thursday, with preliminary durable goods orders rounding off the week on Friday. For UK-based watchers of the US, note that data will once again be an hour earlier than usual, with normal service resuming the following week. We also have a key FOMC decision on Wednesday. We expect Jerome Powell to oversee a 25bp hike at his first meeting as Fed Chair and with such a high expectations rate hike, the main market focus will turn to both the Fed's economic projections and press conference as the market tries to foresee further hikes into 2018 and beyond. We continue to see the ‘dot plot’ pointing to three hikes this year and continuing to factor in two rate rises in 2019.

 

In the Euro area, the highlight will be the EU Summit on Thursday, whilst on the data front the flash PMIs will be closely monitored too. Tuesday, meanwhile, sees the release of preliminary consumer confidence as well as the German ZEW survey. Do also note that the Italian parliament is set to convene on Friday, thereby allowing formal coalition talks to begin although even then government formation talks may be slow to move ahead.

 

The day ahead

Today David Davis is meeting with his EU counterpart Michel Barnier to flesh out the final details of an agreed transition period. Reports suggest that a deal is close, putting it on course to be approved by EU leaders at the Summit later that week alongside the negotiating principles for trade talks. If negotiations do indeed proceed in line with the scheduled timetable, this should help to reassure investors that a final deal is indeed possible which should have some upside for the pound.

 

Thought of the day

In China a romantic coincidence surfaced last week with a married couple discovering a photo of themselves taken 11 years before they met. They didn’t know of their missed connection until they recently saw the photo of Xue, with her husband Ye standing off in the background. Now with twin daughters, they plan to go back to the same spot in the future and take the same photo as a family. In life you may never know what is to come but in the FX markets there is at least some visibility. This week is one filled with potential market moving events and to ensure you’re aware of what is to come and how it could impact the rates and in turn your business, call your Investec FX dealer today. Alongside this, to get further insight into what is to come join the Investec Chief Economist, Philip Shaw on his conference call on 20 March 10:00 GMT.  

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Join our dial-in with Chief Economist Phil Shaw

Tuesday 20 March 10:00 GMT
While corporates prepare for the end of the financial year, the major economic events loom large: a rate rise in the US, and a two-day EU summit the next day. Join our UK Chief Economist for his in-depth analysis of the economic outlook.
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