Today’s macro highlights:
Major crosses looking relatively calm ahead of potentially chaotic week for markets
With no absolute consensus emerging in the wake of the weekend’s G7 meeting and an incredibly colourful calendar in the week ahead, now is the time to be taking risk off the table. This has been played out so far with only limited movements for major currency pairs - most notably a shade of US dollar weakness - but given the sheer magnitude of the macroeconomic and geopolitical events that we’ll see over the next few days, it’s difficult to see any lack of volatility lasting for long.
We do have a handful of lower level economic releases out of the UK today and with the Pound arguably looking precarious over what happens next for Theresa May and the Brexit process, the risk here could be on the downside. In addition to that advance GDP estimate at 12pm BST, we also have the latest trade balance data, plus manufacturing production, construction output, manufacturing production and industrial production for April, all slated for 9.30am. Any notable shortfalls here could chip away at the idea that the Bank of England will be in a position to hike interest rates, dragging down the Pound as a result.
Today’s numbers are however a mere curtain-raiser ahead of the plethora of events that we’re expecting to see this week. Donald Trump meets with North Korean’s Kim Jong Un in Singapore tomorrow and with the US President having already made it clear that he’ll know whether his counterpart wants to find a solution within minutes, this could all be over very quickly. Anything that significantly ratchets up tensions both on the Korean peninsula and across North East Asia would likely prove dollar positive as risk-off trades seek out safe havens.
Tomorrow also sees that key Brexit vote in the House of Commons, where UK lawmakers will be asked to adopt a series of amendments which have been proposed by the House of Lords. As we noted last week, it’s not the granularity which matters here right now, but more the message it sends about the Prime Minister’s stewardship of the event. A leadership challenge at this juncture could result in the government’s wafer-thin majority being lost and the accompanying uncertainty would end up weighing heavily on Sterling.
As the week progresses further, we have monetary policy statements from both the ECB and FOMC where expectations are for hawkish signals to be tabled. Again, with these eventualities - the ECB signalling an end to bond buying and the FOMC adding another quarter point on to rates - fully priced in to the market, the risk is weighted to the downside. Although it seems highly unlikely, any failure to deliver would leave either the Euro or greenback to retreat. Signals over the Fed’s expected path for the remainder of the year will also be closely watched.
The pair has been holding steady since late last week but positive news on the Brexit votes tomorrow could help a relief rally towards the highs from early May.
The pair has been struggling to break higher since the latter part of last week. That news over Eurozone monetary policy tightening isn’t due until Thursday so the risk in the short term could be on the downside. However if we do see the ECB proposing a rapid taper of QE then interest rate hikes by next summer, by the end of the week some notable gains could be forthcoming for the common currency with the possibility of a return to last month’s highs.
Since the end of last month, the pair has been finding repeated support around the current levels. However, with 10 days until the next MPC meeting and the potential for a hawkish ECB statement later in the week, this could be sufficient to see the pair break lower in the short term.