24 May 2018
Market Brief: the long weekend's not here yet!
With the long bank holiday weekend not far off, it’s easy to take your eye off the ball. However, be warned, currency markets are certainly not in wind-down mode yet.
|Today's data releases
|09.30||UK retail sales||Support||Resistance|
|12.30||EU ECB minutes released||GBP/USD||1.3302||1.3451|
|13.30||US initial jobless claims||GBR/EUR||1.1306||1.600|
|15.00||US existing home sales
With the long bank holiday weekend not far off, it’s easy to take your eye off the ball… however be warned, currency markets are certainly not in wind-down mode yet. GBPUSD has dropped for the last five straight weeks and looks set to disappoint for a sixth straight week. If there is any hope for a rebound, the important UK data releases (UK Retail Sales today and UK GDP numbers tomorrow) will have to surprise seriously to the upside!
Before we delve into the ‘what’s still to come this week?’ it’s worth pointing out that yesterday was a pretty intense day in the market. UK CPI inflation in April eased back to a 13 month low of 2.4% (vs. 2.5% consensus estimate) from March’s 2.5%. Core CPI also eased to 2.1% (vs. 2.2% forecast) from 2.3%. The drop in the targeted measure was along the line of the BoE’s short-term forecast in this month’s quarterly Inflation Report (the Bank now expects inflation to fall to 2.1%-2.2% by year end), and should, therefore, carry few implications for monetary policy. That said, the Pound dropped more than 80 points against the Dollar in the few hours following the release, from 1.3390 to 1.3306. It has since rebounded somewhat and is now consolidating fractionally above the 1.3350 handle.
In Europe, Eurozone May’s PMI figures were weak across the board. The headline Composite PMI fell a full point to 54.1 (vs. 55.1 forecast) to an 18-month low. We saw weakness in both the manufacturing and the services sectors, with PMI figures falling to 55.5 (previous 56.2 and against 56.1 forecast) and 53.9 (previous 54.7 and against 54.7 forecast), respectively. There was strong EURUSD selling into and after the news, with the Euro falling from 1.1768 an hour before the announcement, to as low as 1.1676 as trading before consolidating back above 1.1700 this morning.
Yesterday evening we also had the FOMC minutes released at 7pm UK time. These were the minutes of the 1-2 May FOMC meeting in which policy was held steady. Federal Reserve officials signalled that they are set to raise interest rates at their meeting in June. In broad terms they showed the committee content with its gradual tightening plans and on track for another 25bp increase in the Federal funds target rate range (to 1.75-2.00%) at its 13 June meeting. However there was further evidence of debate amongst FOMC participants over (the lack of upward momentum in) wage growth and the extent to which this might track higher going forward, depending on shifts in labour participation, for example. Overall the FOMC continued to view risks to the economic outlook to be roughly balanced, but the minutes flag ‘possible adverse effects of tariffs and trade restrictions, including the potential for postponing or pulling back on capital spending’. Given development on the trade front and the evolution of economic indicators since the early May meeting, it is likely the Fed will press ahead with a 25bp June hike. Our economists look for two further hikes after this in the remainder of this year and two more next year. The market reaction was relatively muted after the minutes were released.
The day ahead
Looking at the day ahead, we have another action-packed day. Scattered throughout the day are a number of important speeches - BOE’s Carney speaks this morning and again tonight, ECB’s Praet speaks twice today too and Stateside, the Fed speakers include Dudley, Bostic and Harker. On the data front as mentioned earlier, Sterling bulls will be hoping for a positive UK Retail Sales number out at 09.30, where the year-on-year core figure is expected to print an abysmal 0.1%, versus the previous reading of 1.1%. This afternoon we also have Initial Jobless Claims (13.30) and US House prices (14.00) data and ahead of this at 12.30 the ECB minutes are to be released too.
Thought of the day
Some say the trick is to get rich slowly but if you’re trying to rob your way to riches, you’d think it’d be better to go for bills rather than coins. A couple of thieves in Florida thought differently when they used a drill to gain access to an outdoor payment machine at a gas station. They’re accused of stealing 3,396 quarters, $849 worth for those not awake enough to do the mental math. Regardless if you think the devil is in the detail (those quarters add up) or if you’re a big picture type (they should’ve focused on bills), we all know FX is an ever changing market. It can be relatively calm as GBP/EUR is at the moment or have big moves as we’ve seen from GBP/USD in recent weeks. FX is where our expertise and focus lies so if you’d like us to help formulate a strategy or simply watch for particular levels, please give our dealing team a call on 020 7597 4000.