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Winter wobbles finally over?

Winter wobbles finally over?

The Pound made a concerted effort to lift itself from the doldrums and rising UK Gilt yields contributed. Ultimately weak growth concerns, especially for retail spending, constrained the gains. Higher oil prices helped underpin sentiment, but Brexit concerns returned after EU chief negotiator Michel Barnier stated there had been no progress made since March, especially on the Irish border issue. Moves above 1.3600 against the Dollar attracted selling interest and the Euro found support near 1.1365.

Today’s labour market data will be released this morning and the main focus will be on average earnings. A significant increase in last month’s annual rate of 2.8% will be needed to convince markets to bring forward rate expectations again. Sterling was trading at just below 1.3550 against the Dollar on market open, and started at 1.1360 against the Euro but edged lower at the bell.


The Dollar was unable to make significant headway ahead of the New York open yesterday with reduced speculation that the Federal Reserve (Fed) would engage in more aggressive interest rate tightening. Cleveland Fed President Mester still supports gradual increases in interest rates and is optimistic that there will not be a sharp pick-up in inflation. Mester also added she didn’t expect the Fed to hike interest rates to above 3.0% in the near term.

The US Retail Sales are delivered at midday. Back in March, headline Retail Sales advanced by 0.6%, better than expected, but the core figures met expectations. Markets will want to see a more rapid clip of growth and not another month of blaming it on the weather. An upbeat report will demonstrate that the Winter wobbles are now over but a disappointment will ring alarm bells. The Retail Control Group is the most market-moving component of the report, and any deviation from 0.4% could prove very substantial for the US Dollar.


With no economic data to move the interests of the market, speeches from European Central Bank (ECB) officials further failed to spur action in investors and traders. That said, ECB Council member Villeroy’s rhetoric centred around the current slowdown in inflation and he was confident that this was only short-term and the underlying inflation is set to strengthen. This led on to him mentioning that the timing of a rate hike was more likely to be a question of quarters, opposed to years. Further speeches from ECB board members Lautenschläger and Mersch did little to sway the Euro.

The Italian political situation remained a significant focus as attempts continue from the 5-Star and Lega parties to form a government. As a result, Italian bond yields moved substantially higher on the day with German yields also showing significant gains. The two parties proposed a 15% flat tax rate introduction for the public debt and public deficit-ridden country as President Mattarella is willing to give the parties time for the negotiation and set no deadline.

Today will certainly be a good indicator of whether this economic slowdown is showing signs of subsiding once more as GDP data will be released for quarter 1. The market will certainly be interested.

Data to Watch:

02:30 AUD RBA Meeting’s Minutes
07:00 EUR Gross Domestic Product w.d.a (YoY) (Q1)
07:00 GER Gross Domestic Product (QoQ) (Q1)
07:00 GER Gross Domestic Product (YoY) (Q1)
07:45 FRA Consumer Price Index (EU norm) (YoY) (Apr)
09:30 GBP ILO Unemployment Rate (3M) (Mar)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Mar)
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Mar)
09:30 GBP Claimant Count Change (Apr)
10:00 GER ZEW Survey – Economic Sentiment (May)
10:00 GER EUR ZEW Survey – Current Situation (May)
10:00 GBP Inflation Report Hearings
10:00 EUR Gross Domestic Product s.a. (YoY) (Q1)
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q1)
10:00 EUR Industrial Production s.a. (MoM) (Mar)
13:00 USD FOMC Member Kaplan Speech
13:30 USD Retail Sales ex Autos (MoM) (Apr)
13:30 USD Retail Sales control group (Apr)
13:30 USD Retail Sales (MoM) (Apr)
17:45 USD FOMC Member Williams speech


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