MAIN EVENTS THIS WEEK
- Monday: OPEC monthly report
- Tuesday: GE GDP & ZEW, UK jobs & wage data + Brexit cabinet meeting on Customs Union, EU GDP & IP, US retail sales & API inventories, Vodafone earnings
- Wednesday: GE/EU Final CPI reading, US IP & DoE oil inventories
- Thursday: AU jobs data, US Philly Fed, Wal-Mart earnings
- Friday: CA inflation rate & retail sales, AstraZeneca earnings
A slow start to the week from a calendar perspective as markets take stock on rate hike expectations. The USD remains under pressure which in turn is providing moderate relief for Cable and EUR/USD with Fed hawk Loretta Mester reiterating the existing Fed stance of “gradual” rate rises to come. Another comment of interest this morning came from ECB’s Villeroy, a typically dovish member of the ECB, who stated that the inflation slowdown in Q1 was probably due to temporary factors. The comment has been cited for the weight in bund futures this morning which have subsequently broken last week’s low, helping to further exacerbate the move.
Away from the data slate there is a plethora of central bank speakers throughout the week and as earnings season draws to a close it’s worth noting that FTSE heavy weights Vodafone (Tues) and AstraZeneca (Fri) are due this week with results from US retailer Wal-Mart on Thursday.
Italy not a concern for the time being…
A considerable amount of the weekend news flow was dominated by the latest political developments in Italy where the 5-Star Movement and the far-right League remain locked in talks. The market reaction has been sanguine, and I think this is justified given the spread-widening seen in recent weeks, and the fact that the 5-Star have watered down their anti-Euro rhetoric. Analysts at ING go as far as to state that the agreement between to the two parties “may offer some tentative relief to euro bulls as it reduces any lingering risks of another Italian election”.
Looking ahead there isn’t a great deal to excite for the EUR, but it will be worth monitoring the flash GDP estimate for Germany on Tuesday morning alongside the latest ZEW reading which will give us an incite as to the how optimistic economists and analysts are about the near-term prospects for the engine room of Europe.
The more decisive factor could well be USD movement, but although US retail sales and industrial production carry a degree of importance, it is unlikely to sway expectations around the current rate trajectory from the Fed and with the weaker inflation prints last week the USD remains on the back foot for the moment.
UK PM May remains under pressure on the direction of the Customs Union…
Having returned to the market today after a week-long vacation it’s clear to see that not a lot has changed as the UK Prime Minister remains in deadlock over the contentious issue of the Customs Union. Reports in the Independent at the weekend suggested that EU officials are set to push for a six-month extension to the UK’s transition period which I would see as a net positive for GBP as if this is to be believed it would show the necessary political will to avoid a cliff-edge scenario.
On this subject, on Tuesday Theresa May will reconvene with her Brexit cabinet while EU chief negotiator Michel Barnier will brief European affairs ministers this week on the status of talks. On Sunday, the latest on this was that Eurosceptic, Michael Gove, attacked her two options on a new customs policy and highlighted risks on whether a plan can be delivered on time.
Away from the politics, the economic data focus will be on Tuesday once again where we await the latest wage data from the UK. Last month average weekly earnings growth remained at 2.8%, but significantly, marked the first time in a year that wages grew faster than inflation. As such, it will be interesting to see whether the consumer will catch a further break and if the report can turn the recent downward trend in the currency pair.
Oil remains supported above $70…
WTI crude remains above the psychological handle for the time being despite Friday’s Baker Hughes report showing an increase of 10 rigs in the week to May 11th, bring the total count to 844, the highest level since March 2015, according to Reuters. For now, markets seem happy to overlook the on-going rise in North American output and given focus on Iran, coupled with the in-going commitments from Saudi and Russia on the supply side, I don’t see this changing anytime soon.
If you missed the market briefing this morning you can access a recording HERE.
Have a good week ahead and I’ll see you in the chat room on Trading-Live.com.