GBP: Inflation figure expected to continue higher
EUR: Christine Lagarde speaking this AM
USD: Surveys and Fed announcement on this week's agenda
Risk sentiment was the reason behind sterling's poor start to last week as equities fell, the economy continues to slow, negative Brexit headlines and soaring inflation was the cocktail that sent the pound lower. Tuesday’s data was mixed as unemployment surprisingly rose for the first time in three months to 3.8%, however wages came in better at 4.2%. The pound did manage to claw back some of its losses following on from the Bank of England’s decision to raise rates by 0.25% with three members calling for a 0.5% rate rise. End-of-year projections now sit at 3% for the UK.
This week's attention will be on Wednesday’s inflation figures forecasted at 9.1%, if this comes inline with expectations or higher, you can certainly expect the £ to gain as a 50bps hike would certainly be on the table. PMI data will also give markets a good indicator on the current outlook of the UK economy, therefore if we see a drop (which is expected) sterling could suffer from this. Retail sales will finish the week forecasted to shrink to -0.6% from the previous 1.4%.
For the first time since 2014 Italian bond yields hit 4%, exemplifying the risk associated with fragmentation (find out about fragmentation here), causing the euro to fall against the buck. The euro gained some support after an emergency meeting was scheduled last Wednesday to ‘discuss current market conditions’ following on from last week’s concerns over fragmentation. Despite the sudden build-up, the central bank announcements were a non-event and markets very quickly switched focus back to Thursday's BoE meeting.
Christine Lagarde speaks today, and markets will be hoping to digest more than last week’s surprise meeting. French President Macron has now lost his majority in France’s National Assembly after Sunday’s legislative elections outline a strong alliance and surge by the left-green opposition. PMI’s are due early Wednesday morning and German Ifo business confidence figures on Friday.
The headlining act last week was notably the FED hiking interest rates by 75bps with money markets now increasing their end-of-year projection to 3.4%. The central bank also lowered its growth forecast from 2.8% to 1.7% and increased its forecast on unemployment up to 1.4%. Another 0.75% hike is still on the cards for July currently being priced in at 60%, however, this will be subject to the next CPI figure.
This week’s theme is surveys, with a group of purchasing managers’ index reports and regional Fed announcements, FOMC member Bullard gets the ball rolling this evening. Fed Chair Powell testifies Wednesday and Thursday, but I would suspect PMI data could take president. Bullard is back Friday lunch to close this week’s economic calendar.
Today's Interbank Rates at 09:11am against sterling movement vs Friday.
|South African rand||
Have a great day.