5 Star politics
Eurozone economic sentiment in May dipped marginally to 112.5 from 112.7, although business confidence strengthened and inflation expectations also increased.
German inflation data was stronger than expected with the year-on-year rate at 2.2% from 1.6% previously. Energy prices were an important factor in this, although the services-sector rate increased to 1.9% from 1.6%. Higher inflation will make it more difficult for the European Central Bank (ECB) to justify a very dovish stance, especially with a weaker Euro adding to cost pressures.
Italian politics continued to dominate market movements, causing an extremely high degree of volatility and uncertainty. There was some initial relief surrounding the latest Italian bond auction with the highest bid/cover ratio of 2018 even though the ECB stated that it saw no need to intervene on the back of events in the last few days.
Data-wise in Euroland, the European Monetary Union’s advanced CPI figures for the month of May will grab all the attention later in the session.
Domestic influences remained limited during Wednesday with market attention focussed on Eurozone developments and not on the Pound itself.
UK yields did, however, move higher, although German and US yields also moved higher which limited Sterling support. Markets were also wary over potential month-end positioning which tends to amplify volatility and could lead to net Sterling selling. The May Lloyds business confidence index strengthened to a 2018 high which had a slight positive impact on Sterling which moved to just above 1.3300 against the Dollar. This was helped by volatility subsiding slightly despite potential month-end positioning.
Today sees a round of data for the UK, beginning with the Nationwide Housing Prices measure for the month of May, with the year-on-year figure expected to tick up slightly from 2.6% to 3.0%. Also, we see April’s Consumer Credit (forecast £1.63 billion, prev. £0.254 billion), month-on-month Net Lending to Individuals (expected £5.2 billion, prev. £5.4 billion), and Mortgage Approvals for April, forecast at 63,000 compared to the previous reading of 62,914.
The US Dollar extended its sharp retracement slide from six-and-a-half-month highs and has failed to gain any respite from a modest uptick in the US Treasury bond yields.
The data from the United States showed a lower-than-expected private sector employment growth with a 178K increase in May. Furthermore, the second estimate of the first quarter GDP eased to 2.2% from 2.3%. The broad-based selling pressure witnessed on the Buck following these data releases encouraged a slight uptick in the Dollar.
Today’s second-tier US economic data – personal income/spending data, core PCE price index, the usual initial weekly jobless claims and Chicago PMI, is unlikely to act as a major game changer but might still be looked upon to grab some short-term trading opportunities.
Data to watch:
24hr EUR G7 Meeting
07:45 EUR Consumer Price Index (EU norm) (YoY) (May)
07:45 EUR Producer Prices (MoM) (Apr)
09:00 EUR Unemployment (Apr)
09:30 GBP Mortgage Approvals (Apr)
10:00 EUR Unemployment Rate (Apr)
10:00 EUR Consumer Price Index (YoY) (May)PRELIMINAR
10:00 EUR Consumer Price Index – Core (YoY) (May)PRELIMINAR
13:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Apr)
13:30 CAD Gross Domestic Product Annualized (QoQ) (Q1)