Could the US be changing tack on interest rates?
Deputy Governor of the Bank of England (BoE), Ben Broadbent stated that investment had declined throughout 2018 and that the negative trend continues. The comment and accompanying warning over Brexit uncertainty added to the already negative Pound sentiment. Futures market pricing indicated that the chances of a BoE interest rate increase this year dropped to 11%, down from around 30% a fortnight ago. Markets maintained their view that the government would very unlikely to secure approval for the Withdrawal Bill in another parliamentary vote.
The Pound flickered above 1.2750 against the Dollar in a technical correction but quickly faded again while the Euro climbed back from 1.1430 to hover around 1.1400. Current Prime Minister, Theresa May is expected to announce Brexit Bill details later today and the reaction in parliament will be scrutinised. Sterling has stumbled out of the traps this morning, opening at 1.2725 on the Dollar and 1.1395 on the Euro. Political and global trade developments will be the focus today.
US Chicago Fed National Activity index dropped to -0.45 for April, the lowest reading for three years and showing notable weakness in the production sector. St Louis Fed President James Bullard stated that if low inflation turns out to be persistent he would be more aggressive in advocating lower interest rates. Atlanta Fed’s Raphael Bostic was neutral on interest rates and the New York Fed’s John Williams stated the need to maintain strong employment and low inflation.
The Dollar traded in narrow ranges yesterday, the Euro hovered around 1.1160 as markets awaited comment from Fed Chair Jerome Powell after US trading closed. Powell stated that it was too early to determine the impact of trade tensions and tariffs on monetary policy and also expressed unease over underlying debt levels. With no explicit reference to monetary policy, the overall impact was limited. The Dollar continued to benefit from a lack of support for its peers and the Euro opens just above 1.1150 this morning.
Germany’s Bundesbank noted that whilst the country has returned to modest growth, it is still not out of the woods yet. Given Germany is Europe’s largest economy, this statement hampered the growth the single currency was experiencing after the current account numbers for the region. The surplus came in at 24.7 billion for March, equating to 2.8% of GDP, confirming the strong balance of payments position the region finds itself in.
European elections start on Thursday, with the consensus being that Eurosceptic parties will do well. This means that the future of the European Central Bank (ECB) could be in the hands of Eurosceptics. Many feel that this has not been priced into the Euro with all the focus being on Brexit negativity and that if, as expected, Eurosceptics make gains we will see a fall in the Euro. France, the EU’s second largest country, is seeing a very close battle between Macron and the National Rally’s Le Pen which could spell trouble for further European integration.
Virtually no data is due out today, only the UK’s industrial trends survey and EU consumer confidence. Neither is expected to cause any real volatility. As mentioned above, many believe that as more news comes out surrounding the EU elections we could see some more volatility.
Data to watch:
01:30 AUD RBA Meeting Minutes
03:10 AUD RBA’s Governor Lowe speech
14:00 USD Existing Home Sales (MoM) (Apr)
N/A NZD GDT Price Index
16:00 USD Fed’s Rosengren speech
22:45 NZD Retail Sales (QoQ) (Q1)
23:50 JPY Adjusted Merchandise Trade Balance (Apr)
23:50 JPY Exports (YoY) (Apr)
23:50 JPY Imports (YoY) (Apr)
23:50 JPY Merchandise Trade Balance Total (Apr)
23:50 JPY Machinery Orders (MoM) (Mar)
23:50 JPY Machinery Orders (YoY) (Mar)