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Bringing home the bacon

Bringing home the bacon

GBP
Mixed labour market data releases made little impact on the Pound. Average earnings printed 2.9%, a post-August 2015 high and above the rate of inflation. After a decade of real wages being outstripped by inflation, we’re finally bringing home the bacon. UK unemployment held at 42-year lows of 4.2% while the employment increase was larger than expected. The data reinforced evidence of a tight labour market, but with no pressure on the Bank of England to raise interest rates quickly.

The Pound declined as far as 1.3450 as the Dollar reaffirmed itself, but recovered to the 1.3500 area. The Euro fell to lows near 1.1400 as Sterling was bolstered by the effect of short covering.

Higher UK bond yields and firmer oil prices are assisting Sterling sentiment this morning, with the Pound just above 1.3500 and the Euro at 1.1415 despite Brexit concerns amid Eurozone political uncertainty.

USD

The US Dollar Index touched a five-month high buoyed by strong US Treasury yields and is trading higher, up 0.4% against the basket of major currencies.

There is a general belief in the markets that there will be an improvement in the frosty relationship between China and the US which should lend some strength to the Dollar. Investors look forward to retail sales data for further trading direction.

Retail sales figures from the US, which were released after the employment figures, came in at 0.3% which was unchanged from last month and is positive enough to keep the US Federal Reserve on track a to continue raising interest rates this year.

Today we have a series of macro releases from the US docket that includes the housing and industrial production data. Attention will remain on the US-China trade talks; the Chinese delegates arrived in Washington earlier today to discuss the trade issues.

EUR

The economic calendar for the Euro yesterday was busy and caught the attention of the market. The single currency, however, was not in favour and lost out to its rivals. Against the Pound, the Euro fell to 1.1398 whilst the Dollar also took gains to lows of 1.1818.

On the economic data front, Eurozone GDP met consensus forecasts with a rise of 0.4% quarter-on-quarter and 2.5% year-on-year with industrial production rising 0.5% month-on-month which was below forecasts. Clearly, this ignited the fire for expectations of inflation to meet the 2% target set by the European Central Bank (ECB), hence the Euro losses.

German first-quarter GDP data disappointed markets with a rise of 0.3% quarter-on-quarter and 2.3% year-on-year. Further, German ZEW investor sentiment index was unchanged for May and did not improve on four-year lows of -8.2 whilst current situation readings beat expectations, posting 87.4. That being said, this latest reading fell slightly from April.

On the political front, the Italian Lega and 5-Star parties moved closer to a government deal with the potential of a formal announcement on Wednesday.

After a blockbuster day for the Euro, the single currency is still in the spotlight with German and the Eurozone inflation data today.

Data to Watch:

24h EUR EcoFin Meeting
07:00 GER Harmonized Index of Consumer Prices (YoY) (Apr)
08:00 EUR Non-monetary policy’s ECB meeting
10:00 EUR Consumer Price Index (MoM) (Apr)
10:00 EUR Consumer Price Index – Core (YoY) (Apr)
10:00 EUR Consumer Price Index – Core (MoM) (Apr)
10:00 EUR Consumer Price Index (YoY) (Apr)
n/a EUR 10-y Bond Auction
13:00 EUR ECB President Draghi’s Speech
13:30 USD Housing Starts (MoM) (Apr)
13:30 USD Building Permits (MoM) (Apr)
13:30 USD FOMC Member Bostic speech
13:30 EUR ECB Cœuré Speech
14:15 USD Industrial Production (MoM) (Apr)
14:15 USD Capacity Utilization (Apr)
15:30 EUR ECB’s Praet Speech
17:00 CHF SNB Chairman Jordan Speech
17:00 CAD BoC Schembri Speech
23:30 USD Fed’s Bullard speech
23:45 NZD Producer Price Index – Input (QoQ) (Q1)

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