Turned out nice again (unless you’re the Prime Minister)
Yesterday morning saw the UK first-quarter GDP growth rate revised down to 0.2% from the preliminary reading of 0.3%, with annual growth of 2.0% reinforcing concerns surrounding underlying growth trends. There was a slight recovery in investment spending for the quarter and mortgage approvals were in line with expectations. As a result, Sterling was hampered by the UK data losing ground against both EUR and USD.
The General Election will be back in the spotlight as campaigning resumes today. Polls released late on Thursday indicated the Conservative’s lead over Labour had dropped significantly to between 5-7% from over 10% previously.
Any further narrowing of the lead would trigger increased concerns that there could be a weak government following the election. This could fuel underlying uncertainty and concerns over EU talks with potentially catastrophic repercussions for GBP strength. Lower oil prices were also a negative factor for the UK currency as it declined to below 1.2900 against the Dollar.
US jobless claims rose marginally while the 4-week moving average declined to the lowest level since 1973 which maintained confidence in the labour market. The goods trade balance was higher than expected at $67.6bn for April, up from $65.1bn the previous month. Exports declined 0.9% for the month while imports increased 0.7% which may fuel trade tensions.
Fed Governor Lael Brainard expressed greater optimism surrounding the global economy and that the balance of risks had, therefore, shifted. Greater confidence in the global outlook suggests that the Fed would be more willing to raise interest rates. San Francisco Fed President John Williams stated that he still expects a total of three rate increases during 2017.
Energy prices were an important focus during the day with a sharp decline in oil prices despite OPEC meeting expectations with a 9-month extension of production cuts. There was some disappointment that members did not reach agreement on deepening production cuts and prices declined over 5% on the day. Comments from G7 will be watched closely on Friday for any US Treasury rhetoric on the Dollar with the revised US GDP data also under scrutiny.
The Euro hit resistance on the approach to 1.1250 on Thursday and lost ground with some net Dollar support during the day.
A drop in oil prices coupled with a strong Euro also means the European Central Bank (ECB) could well cut back its inflation forecast at the June meeting. More ammunition, then, for the likes of ECB Vice President Constancio, who yesterday evening once again stressed that inflation is not yet on a sustainable path towards desired levels.
Today’s calendar remains quiet, with only Italian confidence data. Many Eurozone countries had bank holidays yesterday (many taking today off for a long weekend), And millions of Brits will either have taken today off or will be daydreaming of tomorrow’s traffic jams and screaming kids; trading conditions may well be quieter than normal.
Data To Watch:
24hr EUR G7 Meeting.
1:30pm USD Gross Domestic Product Price Index (Q1), GDP Annualized (Q1), Personal Consumption Expenditures Prices (QoQ) (Q1), Core Personal Consumption Expenditures (QoQ) (Q1), Durable Goods Orders ex Transportation (Apr), Durable Goods Order (Apr).
6:00pm USD Baker Hughes US Oil Rig Count.