Carney drops Brexit bombshell
There were no surprises yesterday as the Bank of England Monetary Policy Committee (MPC) voted 9-0 in favour of no change in interest rates. This now leaves only one vote before the upcoming EU referendum, which was the hot topic during open questions for Mark Carney. Headline statements include that a ‘Brexit’ could potentially lead to a recession for the UK, and that if the UK votes to stay in the EU, Britain’s economy would recover from the slump it is currently in within a year. Currency markets traded sideways during these questions.
Sterling only saw strength through the day yesterday because of weak data from across the Pond. GBPUSD reached highs above 1.4520 before a sell off towards the end of the day. Today, monthly construction output data will be released before MPC members Haldane and Weale speak at separate events. Comments are expected to be similar to those of Governor Carney’s yesterday, and are likely to have a muted impact on the currency markets.
Weekly unemployment claims from the States came in at 294k yesterday, 20k worse off than the week before. Coupled with US import prices printing worse than expected, this caused a swift Dollar sell off. However, there was a recovery for the Greenback before the European close as Fed members Mester and Rosengren encouraged the Dollar bulls back into the market.
There will be another turbulent day ahead for the States today, with inflation figures due for release at the US open. Core retail sales are expected to show a growth in April, along with a predicted positive monthly PPI. The University of Michigan Consumer Sentiment will also be released this afternoon. This gives an insight into the relative level of current and future economic conditions from the perspective of consumers. A strong reading will certainly lead to strength for the Dollar, especially if it follows strong inflation figures.
Poor data from the Eurozone continued in yesterday’s European trading session as the Euro weakened against the Pound. The German wholesale price index came in at -2.7%; -0.1% worse than the previous month’s -2.6%. The European industrial production figures were also poor, printing the same as February’s figure of -0.8%. Swiftly after the data was released the Euro weakened by nearly 1.0% as Sterling was trading against the single currency at the 1.2744 area before ending the day around the 1.2700 level.
Economic data from Germany continued this morning as the consumer price index printed in at -0.4%, -0.2% lower than the March figure. More importantly, the German GDP first quarter figures came in better than expected at 0.7%, surpassing the previous quarter by 0.4%. The GDP outcome should provide some strength for the Euro. The headline news of the day, however, is the European Union first quarter results which are due at 10.00am.
Data to watch: 10am EUR Q1 GDP month-on month, year-on-year. 1.30pm US April Retail Sales & Excl Autos). April Producer Price Index (& Excl Food and energy) month-on month & year-on-year. UK MPC Member Wheale speaks. 6pm US Baker Hughes Oil Rig Count. 11.59pm US Federal Open Market Committee Member Williams speaks.