Carney hints at faster rises
UK PMI construction data edged up to 50.5 in April; just into expansionary territory with the residential sector improving most but overall business confidence remains fragile. As expected the Bank of England (BoE) unanimously voted to hold interest rates at 0.75% and the accompanying statement concluded that domestic demand will be curbed due to Brexit uncertainty and excess demand was likely to build over the medium term. Wages growth forecasts were nudged up modestly and the BoE reiterated it’s a commitment to gradual and limited interest rate increases.
The Pound initially dipped following the statement, but partly recovered after Governor Mark Carney stated that rates would need to rise further than the market has priced in assuming a smooth Brexit process. Thankfully political news was absent due to local elections taking place. Sterling made slight gains on the Euro, moving up to the 1.1670 area while there was a low just below 1.3020 against the Dollar before a slight recovery.
The US Dollar is trading with a positive bias on a trade-weighted basis following a patient interest rate decision from the Federal Reserve (Fed). The Dollar Index trots higher for the second consecutive. The assessment from Fed Chair Powell was cautiously optimistic with a strong labour market, but softening core inflation.
We expect the market to take a breather ahead of the release of the non-farm payroll data today. Job gains have been consistently solid, and unemployment remains at all-time low levels. Oil took another tumble, sliding to a five-day low near $62.40 reacting to US EIA report showing a build-up in stock. Further weakness in the price of the black gold is likely to exert pressure on currencies other than the Dollar.
Despite a marginal uptick in the Eurozone PMI data, there was very little support for the single currency. The German index saw a slight decline which could have explained the lack of support, as well as yield spreads moving against the single currency. As the afternoon session opened up, string support for the Dollar saw the Euro fall below the 1.1200 barriers and settle around the 1.1175 mark. Bundesbank President Weidmann announced German consumption was on the rise, whilst President Juncker publically back Weidmann to succeed Draghi as European Central Bank (ECB) President.
Swiss CPI numbers followed by another Weidmann speech open up the data today. This is swiftly followed by the UK’s markit services before key EU CPI figures are released. The CPI numbers will be of most interest to traders before the data is rounded off by the relatively insignificant producer price index for the single market.
Data to watch
01:30 AUD Building Permits (MoM) (Mar)
06:30 CHF Consumer Price Index (YoY) (Apr)
08:00 EUR German Buba President Weidmann speech (Germany)
08:30 GBP Markit Services PMI (Apr)
09:00 EUR Consumer Price Index – Core (YoY) (Apr)
09:00 EUR Consumer Price Index (YoY) (Apr)
12:30 USD Average Hourly Earnings (YoY) (Apr)
12:30 USD Nonfarm Payrolls (Apr)
12:30 USD Labor Force Participation Rate (Apr)
12:30 USD Average Hourly Earnings (MoM) (Apr)
12:30 USD Unemployment Rate (Apr)
13:45 USD Markit Services PMI (Apr)
13:35 USD Markit PMI Composite (Apr)
14:00 USD ISM Non-Manufacturing PMI (Apr)