Comfort spending fails to lift the gloom
UK retail sales bucked the trend with a 1.6% increase in April, double the consensus forecast. The year-on-year retail sales strengthened to 1.4% from 1.3% previously. Core data was also stronger than expected and Sterling moved higher following the data, although the ONS cautioned that underlying spending growth had slowed sharply and that Sterling momentum faded quickly. The Pound failed to hold the 1.3400 mark against the Dollar or push past Euro support beyond 1.1430.
Governor Mark Carney stated that the Bank of England could tolerate a lengthier overshoot on inflation up to a point in exceptional circumstances. He reiterated expectations of gradual interest rate increases, although these could be accelerated if growth rises above the 1.5% trend rate and investment recovers strongly. Carney remained cautious surrounding the consumer spending outlook and the Pound was trapped below 1.3400 against the Dollar on market open.
The Greenback fell broadly lower against the majority of its peers yesterday after Federal Reserve’s mildly dovish meeting minutes on Wednesday. The Dollar’s intraday decline accelerated after President Donald Trump called off a summit meeting with North Korean leader Kim Jong-un, which triggered safe-haven buying in currencies such as the Yen and the Swiss franc while the benchmark US 10-year Treasury yield falling back below 3% also contributed to the Dollar’s weakness.
US initial jobless claims came out higher than expected at 234,000 from 223,000 the previous week, although continuing claims were lower than expected at 1.74 million and the moving average declined to the lowest level since December 1973. Existing home sales were also weaker than expected with an annualised rate of 5.46 million from 5.60 million. There was, however, a strong reading for the Kansas City Fed manufacturing index at 26 from 17 as price pressures increased.
Today we see US durable goods, durable goods ex-transportation, durables ex-defences and the University of Michigan sentiment.
European Central Bank (ECB) minutes from April’s Council meeting revealed uncertainty surrounding the outlook was rising and a more apparent weakening of demand should not be ruled out. The Council, however, was hopeful inflation would increase to target over the medium term while capacity constraints were more noticeable. The minutes reinforced expectations that the ECB would take a dovish approach and adopt an extremely cautious stance surrounding higher interest rates, although the Euro was able to show some resilience.
On the Italian political front, Lega leader Salvini commented that he still wanted Savona as Economy Minister in the government which triggered fresh losses in Italian bonds. The ECB also warned high-debt countries not to loosen fiscal policy in a clear warning to Italy.
Data to watch:
00:30 JPY Tokyo Consumer Price Index (YoY) (May)
00:30 JPY Tokyo CPI ex Food, Energy (YoY) (May)
00:30 JPY Tokyo CPI ex Fresh Food (YoY) (May)
24h EUR EcoFin Meeting
09:00 EUR IFO – Current Assessment (May)
09:00 EUR IFO – Expectations (May)
09:00 EUR IFO – Business Climate (May)
09:30 GBP Gross Domestic Product (YoY) (Q1)
09:30 GBP Gross Domestic Product (QoQ) (Q1)
13:00 AUD RBA Assistant Governor Bullock Speech
13:30 USD Durable Goods Orders (Apr)
13:30 USD Durable Goods Orders ex Transportation (Apr)
14:15 EUR ECB Cœuré Speech
14:20 USD Fed’s Powell Speech
14:20 GBP BOE’s Governor Carney speech
16:45 USD FOMC Member Kaplan Speech
16:45 USD FOMC Member Bostic speech
18:00 USD Baker Hughes US Oil Rig Count
20:20 EUR German Buba President Weidmann speech