Can labour data pull us out of the mire?
After a small gain was pencilled in, UK industrial production fell short with a decline of 0.8% for April. Manufacturing output figures revealed the weakest performance for over five years. A 1.4% decline in April held the annual increase to 1.4% from 2.9. Construction data was also weaker than expected and the trade deficit was wider than expected with an April goods deficit of £14.0bn. Disappointing UK data releases across the board have undermined growth expectations and triggered sharp Sterling losses. The Pound declined to lows just below 1.3350 against the Dollar and the Euro peaked close to 1.1325.
At midday, NIESR estimated GDP growth of 0.2% in the three months to May, up from 0.1% last month but below forecasts of 0.3%. Sterling gained some support from a recovery in oil prices and gilts still registered net losses during the day. In this environment, there was a Sterling recovery to the 1.3380 area against the Dollar as the Euro retreated to near 1.1360.
Political risk remained significant with Theresa May looking to make concessions in order to avoid defeats in this week’s House of Commons Brexit votes. There was also caution ahead of employment and inflation data due on Tuesday and Wednesday respectively with the UK currency edging lower against a firm Dollar in early Europe.
Italian Finance Minister Giovanni Tria committed to keeping Italy in the Euro and yesterday the head of the markets authority also gave reassurances. Italian bonds rallied strongly during the day which helped underpin Euro sentiment as “contagion” risks subsided. The single currency advanced to highs of 1.1820 against the Dollar as German yields moved higher before retreating back below the 1.1800 level as the Dollar erased early losses with relatively narrow ranges prevailing.
There were no significant Eurozone or US data releases during the day which tended to dampen market activity. Positioning was also an important element ahead of the Federal Reserve and European Central Bank (ECB) policy meetings. Given that officials from both banks are in a blackout period, there was no guidance for markets which heightened uncertainty.
The Dollar is generally weaker today after a pick-up in market sentiment that has left the mighty Greenback in less demand.
Initial trading was dominated by concerns over Trump’s announcement that he was backing out of the joint G7, halting demand for the Dollar. However, the upbeat sentiment returned to the buck last night, caused by the auspicious meeting between President Donald Trump and North Korean leader Kim Jong-un in Singapore; both leaders pledged to aim towards complete denuclearization. In addition, yields of the key US 10-year reference are prolonging the sideline theme so far this week between 2.95% and 2.97% as investors stay cautious ahead of the Committee’s revised ‘dots-plot’ expected tomorrow.
Later in the day, the Greenback should remain under pressure in light of the publication of US inflation figures gauged by the CPI for the month of May, ahead of the key FOMC meeting due tomorrow.
Data to watch:
02:00 USD Trump – Kim meeting
02:30 AUD Investment Lending for Homes (Apr)
02:30 AUD Home Loans (Apr)
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Apr)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Apr)
09:30 GBP Claimant Count Change (May)
09:30 GBP ILO Unemployment Rate (3M) (Apr)
10:00 EUR ZEW Survey – Economic Sentiment (Jun)
10:00 EUR ZEW Survey – Current Situation (Jun)
13:30 USD Consumer Price Index Ex Food & Energy (MoM) (May)
13:30 USD Consumer Price Index (YoY) (May)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (May)
13:30 USD Consumer Price Index Core s.a (May)
13:30 USD Consumer Price Index (MoM) (May)
19:00 USD Monthly Budget Statement (May)