ACM Update 10-06-24
European politics to the fore over the weekend, as President Macron called a snap election. Nervousness of far-right gains has crept in, and Sterling-Euro has moved up to its highest since August 2022. GBP has gained for four consecutive weeks vs the Euro, so could this be a fifth?
Last Thursday’s ECB meeting went as expected, causing little movement at all despite the telegraphed rate cut. Meanwhile a buoyant US Non-Farm Payrolls on Friday for May took 0.8% off Sterling-Dollar, thus erasing all weekly gains. The Federal Reserve deliver their latest monetary policy this week.
Major market events were all from outside the UK last week. Thursday lunchtime’s ECB meeting was the biggest and saw an interest rate cut which has been telegraphed for some time now. Lagarde & Co duly delivered the promised cut of 25 basis points, despite inflation jumping back up last month. Given this was almost a foregone conclusion, the questions became what they would do next and is this the start of further cuts.
The short answer, no. There was no additional forward guidance offered at all, other than the usual “data dependent” approach. There is a feeling that the ECB may have over-promised though in their rate cut, as data is far from rosy in providing concrete evidence that inflation is finally under control. Could the ECB live to regret their 6th June promise, one wonders?
Lagarde stated in the subsequent press conference that the ECB are now more confident in their forecasting models. Unfortunately, those forecasting models are now showing inflation to average higher than the bank was previously expecting. Projections suggest 2.5% in 2024, 2.2% in 2025, & 1.9% in 2026. We saw little movement for the Euro on Thursday from the ECB meeting though.
The other major event on the continent was the European Parliamentary Elections in the 27 member states, running from Thursday to Sunday. Late yesterday evening the results began to trickle through with centre-right parties broadly performing well. Incumbent parties fared worst, notably in France & Germany.
The biggest surprise was Emmanuel Macron calling a snap election in France, with the two rounds scheduled for 30th June & 7th July, just before the Paris Olympics. The Euro weakened as a result to its highest since August 2022, trading as high as 1.1830 this morning.
In other data releases, the range of Eurozone PMI figures for the manufacturing sector all came in as expected, still marginally in contraction overall. Services figures fared better, into expansion at 53.2. Retail Sales however saw a month-on-month slump of -0.5% in April’s figures.
The moves upwards on GBP-EUR last week and the peak this morning can be seen below:
In addition to the rate cut in from the ECB, we also saw a 0.25% interest rate cut from the Bank of Canada last week. Of the big central banks, we now have the Swiss, Canadian and European Central banks having made one rate cut thus far.
Over in the US it was the week of jobs data once more. JOLTS job openings (the total number of available job listings) for April did show a slowdown, hitting the lowest figure in three years. Is the US economy starting to feel the pinch of higher interest rates perhaps?
Other figures supported this theory, in the form of ADP jobs and Unemployment Claims numbers. Both came in in worse than forecast for May and last week respectively, but this didn’t stop the main Non-Farm Payrolls figure displaying the reverse.
The Non-Farm Payrolls figure showed an additional 272,000 jobs were added to the US economy in May, well above the 182,000 forecast. Given this is the most significant of the jobs releases, it reduces the likelihood of Federal Reserve interest cuts coming any time soon, thus strengthening the Dollar on Friday afternoon.
The simultaneous releases saw the Unemployment Rate nudging up slightly to 4.0% and Average Earnings (wage growth) increasing by 0.4% monthly, more than expected. These two also form leading indicators as to upcoming policy action. The latest Fed meeting is this Wednesday night, more information on that in the final section of this market update.
UK data releases were very much on the limited side. Manufacturing and Services PMI numbers both demonstrated growth and also matched their expected figures. The Construction PMI data seems to have turned a corner, recording its strongest figure since June 2022, a good sign for the sector.
The housing sector picture still remains a little unclear. Halifax house prices though showed a -0.1% monthly drop in average prices for May, contradicting the equivalent figure from Nationwide released the week before.
The run up to the UK Election on 4th July continued with the first televised debate between Rishi Sunak & Sir Keir Starmer. Taxes were the focal point and by most accounts, it was somewhat of a dead heat between the two party leaders. The battles continue this week with the vote now 24 days away.
Sterling-Dollar movements last week can be seen below:
The week ahead:
Monday – European Parliamentary Election results, Bundesbank President Nagel speech (10:30 UK time)
Tuesday – UK Claimant Count Change & Unemployment Rate (07:00)
Wednesday – UK GDP & Manufacturing Production (07:00), US CPI inflation (13:30), Federal Reserve rate announcement (19:00) & Press Conference (19:30)
Thursday – US Unemployment Claims & PPI (13:30), Treasury Secretary Yellen speech (17:00)
Friday – Bank of Japan rate announcement (03:00), University of Michigan Consumer Sentiment (15:00)
Last week was the turn of the ECB, this week we see the Federal Reserve step into the spotlight for their own latest monetary policy decision. Interest rates in the US are highly likely to remain as they are, given recent narrative from the committee urging patience.
Chairman Jerome Powell is likely to use his press conference to attempt to paint a clearer picture on the path ahead. This information is likely to be the bigger market mover. The latest US inflation print drops a matter of hours before the Federal Reserve meeting, with CPI forecast to remain at 3.4%.
In the Eurozone, the fallout from the European Parliamentary Elections will dominate movements, at least in the earlier part of the week. Thus far, market reaction continues to be Euro-negative.
There are a few significant UK releases also, where Unemployment numbers arrive first thing on Tuesday morning. The headline unemployment rate is expected to remain at 4.3%, and the Average Earnings Index forecast at 5.7%. This would put the figure still well ahead of inflation. Another concern for the Bank of England.
GDP figures for April are also released, but expected to show 0.0% growth compared to March. Not exactly the sort of headline that Rishi Sunak would be hoping for…..
Recent movements and events have shown that anything is possible in the FX market. Whilst all eyes were on the ECB, the European Elections have caused a real stir and have weakened the Euro unexpectedly. To remove such risks from your upcoming currency transfers, make sure to reach out to the team for more information.
Have a great week.
