ACM Update 25-04-22
The biggest news event of the week came on Sunday, with Emmanuel Macron beating Marine Le Pen in the French election run-off. The Republic on the Move leader ensured a second term with circa 58% of the vote to Le Pen’s 42%, despite his unpopular handling of the recent cost of living increases. The French Government capped the recent energy price increase at 4%, with the largely government-owned EDF footing a bill of £7bn to protect French households from price rises. This compares to the 54% equivalent hike in the UK…..
Elsewhere in Europe we had comments from ECB member Martins Kazaks, stating that an interest rate rise in the bloc in July was still possible. He also used Christine Lagarde’s tactic of double negatives rather than agreement, by saying “I have no reason to disagree with what markets are pricing for the second half of the year”. We also saw Eurozone Final CPI confirmed as 7.4% YoY.
GBP-EUR overall moved in a range of 1.7% last week, as illustrated in the chart below:
Much like Boris Johnson’s “apology” in Parliament, sterling had a pitiful time last week. The only real UK data release was Retail Sales data on Friday morning for the month of March. Expectations were for a slight contraction of -0.3%, but the figure came in at -1.4%. Cost of living increases recently are seemingly causing the British public to be more cautious with regards to their spending. By the finish of trading on Friday, GBP-USD had briefly touched 1.2822, its lowest level since September 2020.
Bank of England Governor Andrew Bailey spoke at a couple of events last week, with inflation his hottest topic as usual. He chose his words carefully, and without saying the word “recession”, used a lot of narrative associated with a recession. One sentence of note being: "We are walking a very tight line between tackling inflation, and the output effects of real-income shock".
The bank faces their next meeting in a couple of weeks’ time on 5th May, with anything possible in terms of their next move. Inflation continues to spiral despite recent rate hikes, and with growth slowing it is tough to say whether another is the right approach. Barclays expect a hike in May, then for Bailey & co to pause at 1% for the time being.
For now, the 2% swing in just over 24 hours has presented us with the best rates for Dollar sellers in over 18 months. Anyone on this side of the pair should look to take advantage of recent moves given the fantastic opportunity to buy GBP at under 1.30. Moves for the week can be seen in the chart below:
The US had a somewhat quieter week last week, with EUR-USD still bouncing along at an almost two-year low at times. The Fed’s Beige Book was released, which found inflation unlikely to be slowing “in the coming months”. No great surprises there. The economy is still performing well, and the jobs market remains strong for now. The next Fed meeting on 4th May is still expected to produce a 50-basis point hike.
Elsewhere, the meeting minutes were released from the latest Reserve Bank of Australia meeting on 5th April. Inflation and wage growth were now running at a rate worthy of an interest rate hike soon, but this may have to wait until their June meeting. The RBA are unlikely to act prior to the upcoming federal election on 21st May, which sees incumbent PM Scott Morrison face Anthony Albanese of the Labor Party.
The week ahead:
Monday – Australian & New Zealand Bank Holiday (ANZAC Day)
Tuesday – Japanese Unemployment Rate (00:30 UK time) expected 2.7%
Wednesday – Australian CPI (02:30 UK time) expected 1.7%
Thursday – US Advance GDP (13:30 UK time) expected 1.0% down from 6.9% last quarter
Friday – Nationwide HPI (07:00 UK time) expected 0.8%
The week ahead carries very little in terms of major economic events frankly, as we head towards the end of April. As demonstrated last week though, it only takes one event to cause other macroeconomic concerns in this current climate.
As covered already, Dollar sellers are in a favourable position at the moment to be buying either GBP or Euros, with highs dating back to 2020 on both. Political events in Westminster are likely to be a sterling driver this week, with Boris Johnson still wading through hot water as the “partygate” saga continues.
For those looking to buy Euros from GBP, movements have not been favourable recently. Despite the recent interest rate hikes, inflationary pressures are starting to hurt consumer spending, which in turn will have a knock-on effect on overall growth. The word recession has not yet been mentioned from the Bank of England, but must be in their thoughts, even if only a very temporary one.
Please do reach out to the team to discuss any upcoming requirements.
A brief point, next Monday (2nd May) is a Bank Holiday in the UK, so the Aston offices will be closed for trading for the day.
Have a great week ahead!