The roadmap to Trexit
With no tier one data releases from the UK yesterday the markets focused domestic politics and trading patterns elsewhere. An overwhelming lack of confidence Theresa May’s ability to push the Brexit Withdrawal Bill through in early June and the subsequent drop in confidence in her leadership increased pressure for a firm date of departure and expectations of another no-confidence vote in June. The Pound dropped to three-month lows below 1.2850 against the Dollar and the Euro strengthened to eight-week highs below 1.1500.
Although Sterling stabilised during the afternoon an improvement in global risk conditions provided slender protection to sentiment and the Pound recovery was modest at best. The Prime Minister has a meeting with the 1922 backbench committee today to plan her leaving do and markets still have little hope of a Brexit breakthrough. Sterling opened below 1.2850 on the Dollar and 1.1460 on the Euro.
The US Dollar maintains a firm tone relative to most currencies, despite retail sales missing market consensus.
The greenback held onto yesterdays overnight gains as the market continued to assess incoming data out of the US. US retail sales for April 2019 recorded a decrease of 0.2% from the previous month. There was however an upward revision for the March from 1.6% to 1.7%. A separate survey report saw business activity index climbing eight points.
The Empire State Manufacturing Index now stands at 17.8, its highest level in six months. Firms are more optimistic about the near future, expecting a solid pick up in new orders, shipments and employment. The Dollar index is up 0.15% on these headline news and is expected to firm up further against the Pound, but remains still under pressure from safe-haven currencies. Trade talks between the US and China have taken a detour after a recent exchange of trade taxes, with soft data from China encouraging risk-off trading activities.
German ten-year bonds declined to their lowest level since October 2016 yesterday which triggered a fresh round of buying. Italian bond yields moved higher meaning the widened spread between German and Italian yields significantly undermined the Euro yesterday and versus the Dollar, the Euro fell below 1.1200. Aside from this, the data did not have much of an effect, but Trump announced that he would delay the EU tariffs provided a late boost. The European Central Bank’s (ECB) Coeure mentioned that some factors hindering growth were fading, and the Italian Finance Minister Tria stated that the government’s budget target stood which lowered yields. Both of these factors help the Euro recover slightly.
The Eurogroup is meeting today which will be of interest and then the ECB’s Praet speaks this morning. We then have Italian CPI numbers, German Buba President Weidmann speaks then we have Italian and EU trade balances. Whilst these will be of interest we do not expect too much volatility. The data is rounded off by speeches, firstly by the ECB’s De Guindos, then the Bank of England’s (BofE) Haskel and finally the ECB’s Coeure later this evening.
Data to watch
24H EUR Eurogroup Meeting
01:30 AUD Unemployment Rate s.a. (Apr)
01:30 AUD Fulltime Employment (Apr)
01:30 AUD Employment Change s.a. (Apr)
02:15 CNY FDI – Foreign Direct Investment (YTD) (YoY) (Apr)
02:45 AUD RBA’s Bullock speech
07:30 EUR ECB’s Praet speech
08:15 EUR German Buba President Weidmann speech (Germany)
12:30 USD Housing Starts (MoM) (Apr)
12:30 USD Building Permits (MoM) (Apr)
12:30 USD Initial Jobless Claims (May 10)
12:30 USD Continuing Jobless Claims (May 3)
12:30 USD Philadelphia Fed Manufacturing Survey (May)
12:30 EUR ECB’s De Guindos speech
15:15 CAD BoC’s Governor Poloz speech
16:15 USD Fed’s Brainard speech
17:30 GBP BoE’s Haskel speech
18:00 EUR ECB’s Coeure speech
22:30 NZD Business NZ PMI (Apr)