UK Inflation, Trade Wars and the ECB to Drive the GBP, USD and the EUR

It’s a busy time for the markets, with focus shifting to today’s inflation figures out of the UK and the ECB Press Conference later today, positioning coming in the wake of FED rate hike on Wednesday.
Bob Mason

Earlier in the Day:

Key stats released through the Asian session this morning were on the heavier side, including May’s employment figures out of Australia, retail sales, May’s fixed asset Investment and industrial production figures out of China and finalized April industrial production figures out of Japan.

For the Aussie Dollar, the unemployment rate fell from 5.5% to 5.4% as the participation rate slipped from 65.6% to 65.5%, with total employment rising by just 12,000, as full employment fell by 20,600 in May, the uptick in employment numbers coming off the back of a 32,600 increase in part-time employment

The Aussie Dollar moved from $0.75710 to $0.75730 upon release of the figures by the ABS, before easing to $0.7563 at the time of writing, down 0.20% for the morning.

Out of China, some softer numbers hit risk appetite:

  • Fixed asset investments grew by 6.1% year-on-year in May, falling short of a forecasted and April 7%.
  • Industrial production rose by 6.8% year-on-year in May, falling short of a forecasted 6.9% and April 7% growth rate.
  • Retail Sales increased by 8.5% year-on-year in May, falling short of a forecasted 9.6% rise, whilst slowing from the 9.4% rise in April.

The Aussie Dollar moved from $0.75703 to $0.75578 upon release of the figures, with the softer numbers in line with expectations that the Chinese economy would see a slight pullback through the second half of the year, though things could get worse should a trade war ensue.

For the Japanese Yen, industrial production rose by 0.5% month-on-month in April, which was better than a prelim and forecasted 0.3% rise. While the numbers were better than prelim, there was a material slowdown from March’s 1.4% rise in production.

The Japanese Yen moved from ¥110.201 to ¥110.178 against the U.S Dollar, upon release of the figures, before rising to ¥110.13 at the time of writing, softer economic data through the morning seeing a pullback in risk appetite.

In the equity markets, the Nikkei and ASX200 were down 0.51% and 0.15% respectively ahead of the close, while the Hang Seng and CSI300 were down 0.62% and by 0.54% respectively, with concerns over trade tariffs, a more hawkish FED and weaker stats out of China weighing on investor appetite through the session.

The Day Ahead:

For the EUR, stats through the morning include finalized May inflation figures out of Germany and France, though the main event will be the ECB’s monetary policy decision and the all-important press conference later in the day.

As things stand, the markets have taken a position, the general view being that Draghi will be delivering a more hawkish stance from a policy perspective, with an outline of when the QE program will be brought to an end. The hawkish sentiment comes at a tricky time for the EUR, with the Eurozone economy having faltered in the 1st quarter and the start of the 2nd, the threat of a trade war also continuing to loom large.

The EUR was up 0.14% to $1.1808, with the ECB press conference the key driver later in the day.

For the Pound, May retail sales figures are scheduled for release later this morning. Sentiment towards BoE monetary policy continues to be mixed, with private sector PMI numbers having showed a strong rebound in the 2nd quarter from the softer numbers in the 1st quarter, while April’s industrial and manufacturing production numbers released at the start of the week disappointed.

For the chances of a rate hike before the end of the year to remain on the table, today’s retail sales figures are going to need to impress.

Earlier in the day, the RICS House Price Balance came in at minus 3%, which was better than a forecasted minus 5% and April’s revised minus 8%, the numbers having little impact on the Pound at the time of release.

At the time of writing, the Pound was up 0.15% to $1.3396, with support coming off the back of Theresa May’s Brexit battle victories in parliament this week, though direction later in the morning will be hinged on the stats.

Across the Pond, it’s a relatively busy day on the data front, with key stats scheduled for release including May retail sales and import and export price index figures, April business inventory numbers and the weekly jobless claims data. The retail sales numbers are likely to be the key driver from a data perspective, with forecasts being Dollar positive.

Outside of the stats, the Oval Office will also be of influence as news hit the wires on Wednesday of the U.S administration looking to introduce tariffs on Chinese goods as early as Friday that will likely lead to a retaliatory response by China.

At the time of writing, the Dollar Spot Index was down 0.12% to 93.431, with today’s retail sales figures and the Oval Office the key drivers, Trump likely to trump the retail sales numbers if there is a shift in position on trade tariffs.

Across the border, the Loonie is back in action, with April’s new housing price index figures scheduled for release, though the stats are unlikely to have a material impact with trade still in focus in the wake of the G7 last week.

At the time of writing, the Loonie was up 0.04% to $1.2982.

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