ACM Update 29-04-24
A period of recovery somewhat for GBP last week, as sterling clawed back the majority of the losses from the week before against most majors. This came through both reasonable data, alongside further interest rate cut/hold murmurings.
A big few days to come in terms of US data, with the latest Federal Reserve interest rate announcement and subsequent Jerome Powell press conference on Wednesday evening. This is followed by the all-important jobs data, in the shape of Non-Farm Payrolls and Unemployment on Friday. In the Eurozone, we have more inflation news on Tuesday, prior to the EU-wide Labour Day bank holiday on Wednesday.
In terms of UK data last week, the one big negative (especially for Jeremy Hunt & Rishi Sunak) was the public sector net borrowing release on Tuesday morning. This showed the Government borrowed more than had been forecast in the 2023/24 financial year, equivalent to 4.4% of GDP.
The deficit was lower than in the previous year mind you, where the Government was paying out to cover energy bills during the peak of the cost of living crisis in the UK. The increase in borrowing puts the recently announced tax cuts under scrutiny, as Jeremy Hunt may have already run out of wriggle room in his budget to do as planned, piling further election pressure on the struggling Conservative party.
UK PMI (Purchasing Managers Index) data showed a buoyant picture for the Services sector, as it hit an 11-month high in terms of growth, handsomely beating forecasts with a reading of 54.9. The same couldn’t be said for the Manufacturing sector which remained in contraction at 48.7, now having been under 50 for twenty-one consecutive months.
All other UK news was about the looming Bank of England interest rate decision, in ten days’ time. There seems to be a fair divide on upcoming policy amongst the MPC members, as is their right. Chief Economist Huw Pill gave GBP a boost, in stating that interest rate cuts remained “some way off” and he sees more risks from cutting rates too quickly, rather than too late.
His colleague Jonathan Haskel meanwhile believes the jobs market is the key and is still too tight for rate cuts at present.
In the Eurozone, a very similar situation to that in the UK on the Services and Manufacturing PMI data. Services data was buoyant and in expansion across the board, significantly more so than expected in the German figures which is a positive. Manufacturing was lower than expected across all the major nations, contracting also.
Judging by comments from two ECB members last week, the forecast June interest rate cut seems to be becoming more of a certainty. Bank of France Governor, Francois Villeroy de Galhau, believes the bank “must not wait too much”, even if geopolitical events in the Middle East impact oil prices and thus inflation.
Italian colleague, Fabio Panetta, is concerned that the ECB may be forced to return to their period of ultra-low interest rates if cuts don’t begin soon. He believes that ECB policy should not have to mirror action being taken in the US by the Federal Reserve. Overall though, still a good week for the Euro, despite losing a little ground to sterling.
Movements on GBP-EUR for the week can be seen in the chart below:
In the US, the PMI situation wasn’t quite as good, with Manufacturing sub-50 for the first time since December and Services their worst in six months also. We saw bad news also in the form of Advance GDP, coming in a long way short of expectations for Q1. A slowdown to 2.5% had been expected, but the 1.6% reading dented the Dollar on Thursday. A slowdown in growth may yet be a factor in Federal Reserve policy decisions this year.
The recent stickiness of US inflation continued with Core PCE Inflation at an annualised 2.8% for March on Friday afternoon. The figure was slightly above the 2.7% forecast. Barring something particularly drastic, this makes the Federal Reserve unlikely to cut interest rates for a good few months yet.
Analysts continue to debate whether we will see two, one or no cuts at all from Powell & Co in 2024, which continues to be the main driver of the US Dollar. This week’s Federal Reserve meeting is likely to be all about the Powell press conference, as is often the case.
Movements last week on GBP-USD can be seen below:
The week ahead:
Monday – Spanish Flash CPI (08:00 UK time), German preliminary CPI (09:00)
Tuesday – German prelim GDP (09:00), UK Mortgage Approvals (09:30), Eurozone Flash CPI (10:00), US Employment Cost Index (13:30), US Conference Board Consumer Confidence (15:00)
Wednesday – EUROZONE BANK HOLIDAY, US Final Manufacturing PMI (14:45) & ISM Manufacturing PMI (15:00), Federal Reserve rate announcement (19:00) & Press Conference (19:30)
Thursday – Swiss CPI Inflation (07:30), US Unemployment Claims (13:30)
Friday – US Non-Farm Payrolls exp 243k & Unemployment Rate (13:30), US ISM Services PMI (15:00)
BANK HOLIDAYS:
Please note that this Wednesday is an EU-wide bank holiday, thus all EUR payments will be delayed to Thursday as a result. Monday 6th May (next Monday) is also a UK bank holiday, meaning the Aston offices will be closed for the day.
After a better week for GBP last week, we have limited UK market data out this week, apart from housing sector news in the form of Mortgage Approvals figures on Tuesday morning. Given the proximity to the next Bank of England meeting (Thursday 9th May), we are unlikely to hear too many speeches from policymakers either, so expect sterling to be driven by data from other currencies.
In Europe, with a week divided by a continent-wide bank holiday on Wednesday, data is slightly limited also. The latest performance figures from the German economy will be important on Monday & Tuesday, in the battle to emerge from recession.
The Flash CPI inflation figure from April for the bloc, released on Tuesday morning, gives the earliest indication of all metrics for inflation in the current month. This is expected to remain at 2.4% as with March.
The biggest events of the week will come from the US, with an interest rate announcement and jobs data both being revealed in less than a 48-hour window. These two releases can be expected to drive Dollar movements this week, and could have a substantial impact on the Euro and Pound, given the “who will blink first” position on interest rates currently.
As already eluded to, one would expect the Federal Reserve to hold rates, with a pretty high degree of confidence. The subsequent press conference will likely provide some content from Powell as to when interest rate cuts can be expected, if at all in 2024. Jerome always chooses his words very carefully though.
The unpredictable release of Non-Farm Payrolls in the US will close out the week. Whilst the US jobs/unemployment figures remain buoyant, the Federal Reserve are under little pressure to cut interest rates. The forecast is for a further circa 240,000 jobs to have been added in April, which should maintain the positive jobs market picture.
With weekly movements of up to 2% on some pairs recently, do make sure to reach out to the team with any specific requirements you may have. Conditions remain volatile, and will continue to be driven by anything related to interest rate cuts from the Bank of England, Federal Reserve and European Central Bank.
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Have a great week.
