With no UK economic data releases, political developments and global market trends continued to drive Sterling trading. James Cleverly joined the Conservative leadership race divisions deepened within the Labour Party. Brexit concerns continued to erode Sterling support, although a formal endorsement of a second referendum by Labour could boost increasing speculation that Brexit may not happen. The markets were cautious over potential month-end selling pressure for the Pound, especially given fragile risk appetite.
Sterling mustered a slender daily gain on the Euro but dropped to just above 1.2600 against a stronger Dollar. The latest car production data recorded a 45% decline in April as factory shutdowns intended to ease disruption over the March 29th Brexit date added to the global slowdown in car manufacturing. The data reinforced concerns over the economic impact of Brexit uncertainty. Sterling opens little changed from the close, trading around 1.1350 on the Euro and 1.2635 against the Dollar.
Global financial markets continue to be driven by fears of escalating tension between the US and China. Reports out of Beijing are suggesting that the country is preparing to retaliate with a ban on rare earth metals which are used in technology manufacturing such as microchips, cellphones and the like.
Though we are not expecting a return to the old barter system, risk-off sentiment is undermining currency action. The focus once again turns to falling ten-year US Treasury yields and prospects of a global economic slowdown. WTI oil futures records another drop of 3% this morning to trade near a two-month low.
Given underlying trade tensions, markets were continuing to expect that global central banks would adopt a dovish stance and futures prices continued to indicate a Fed Funds rate cut before the end of 2019. There were still concerns that the US economy would be damaged by trade tensions, but commodity currencies tended to lose ground amid global growth concerns and the Dollar secured an element of defensive support.
Italian tensions seemed to boil over yesterday, with the EU Commission reportedly sending a letter to Italy warning them that they were in violation of deficit-reduction rules. Many expect this to be ignored by the Euro-skeptic Italian government which will only serve to increase tensions and apply downward pressure on the single currency. A strengthening Dollar only exerted more pressure on the Euro.
German labour data was weaker than expected and also contributed to a lack of confidence in the region. Yields on German ten-year bonds continued their downward trajectory, hitting their lowest levels since July 2016 with many thinking this is a race to the bottom. European Central Bank (ECB) Member Rehn also announced that an increase in ECB rates is further away now than it was a few months ago. All of this meant that the versus the Dollar the Euro hit 1.1125.
From a data perspective we see retail sales and CPI numbers out of Spain and then a speech from the Bank of England’s (BoE) Ramsden. It is also Ascension day for some European countries, so banks will be shut in Germany, Switzerland and France.
Data to watch:
01:30 AUD Building Permits (MoM) (Apr)
04:15 AUD HIA New Home Sales (MoM) (Apr)
07:30 GBP BoE’s Ramsden speech
12:30 USD Continuing Jobless Claims (May 17)
12:30 USD Initial Jobless Claims (May 17)
12:30 USD Gross Domestic Product Annualized (Q1)
12:30 USD Gross Domestic Product Price Index (Q1)
12:30 USD Personal Consumption Expenditures Prices (QoQ) (Q1)
12:30 USD Core Personal Consumption Expenditures (QoQ) (Q1)
12:30 CAD Current Account (Q1)
14:00 Pending Home Sales (MoM) (Apr)
16:00 USD Fed’s Clarida speech
18:15 CAD BoC’s Wilkins speech
23:01 GBP GfK Consumer Confidence (May)
23:30 JPY Unemployment Rate (Apr)
23:30 JPY Jobs/Applicants Ratio (Apr)
23:50 JPY Tokyo Consumer Price Index (YoY) (May)
23:50 JPY Tokyo CPI ex Fresh Food (YoY) (May)
23:50 JPY Industrial Product (YoY) (Apr)
23:50 JPY Retail Trade (YoY) (Apr)
23:50 JPY Retail Trade s.a (MoM) (Apr)
23:50 JPY Large Retailers’ Sales (Apr)