Fed holds5th May 2019
Positive Brexit rhetoric again gave Sterling a positive start at market open and PMI manufacturing printed in line with forecasts with a decline to 53.1 in April from March’s 55.1. New orders growth slowed with export orders suffering a notable drop at less stockpiling generally, business optimism rose to a seven-month high and consumer borrowing dropped. Overall the data did nothing to negatively affect the Pound.
A Labour Party spokesman stated their optimism that the government would be willing to compromise in some areas of their Brexit position, but the breakthrough was not there yet. Further reports revealed that Theresa May was preparing to keep the UK aligned with EU customs union rules. In US trading hours, following the Federal Reserve (Fed) statement, Sterling pushed to highs of 1.3100 on the Dollar before a correction, but Sterling was resilient. The Euro remained on the defensive with lows around 1.1655 ahead of today’s Bank of England (BoE) statement and inflation report.
The Fed maintained interest rates at 2.50% following the latest policy meeting, in line with consensus forecasts and with a unanimous vote. According to the statement, the labour market remained strong and activity rose at a solid rate. Underlying inflation had declined and was running below 2.0%. The Fed cut the interest rate on excess reserves slightly to help keep the Fed Funds rate down and the Dollar moved lower following the release with Euro highs above 1.1260. In his press conference, Chair Powell expressed confidence that the decline in core inflation would be transitory and stated that overseas growth concerns had moderated slightly while the reserves move was technical. Overall, Powell did not see a case for increasing or cutting rates.
Datawise, the US April ADP data recorded a strong increase in private-sector payrolls of 275,000 from a revised 151,000 previously. ADP stated that technical factors were likely to have distorted the data and that the US job market is slowing. In contrast, the ISM manufacturing index declined to 52.8 for April from 55.3, below consensus forecasts of 55.0 and the lowest reading since November 2016. Most components were also weak with new orders dipping sharply to 51.7 from 57.4 while export orders declined for the first time since February 2016. Employment growth also slowed sharply while the prices paid index declined to 50.0 from 54.3 previously. The weaker ISM data triggered fresh Dollar losses with the Euro advancing to near 1.1250, currently sitting around 1.1200.
Yesterday was a very quiet day for the Euro with most of the region on a holiday. No real data came out and a speech by the European Central Bank’s (ECB) De Guindos did not throw up any surprises. Almost all of the significant news came from across the pond, (as mentioned above), with the Fed’s announcement, the Euro rallied to 1.1260 before dropping off late Thursday/early Friday.
Data today includes retail sales figures and markit manufacturing PMIs out of Germany, Switzerland, Spain, Italy, France, the EU and the UK. The German data will be of most interest but news will be dominated today by the BoE interest rate decision. Later in the day, there is a speech by the German Buba President Weidmann and the ECB’s Praet.
Data to watch
06:00 EUR Retail Sales (MoM) (Mar) (Germany)
06:30 CHF Real Retail Sales (YoY) (Mar)
07:55 EUR Markit Manufacturing PMI (Apr) (Germany)
08:30 GBP Markit Construction PMI (Apr)
11:00 GBP BoE Interest Rate Decision
11:00 GBP BoE Asset Purchase Facility
11:00 GBP Bank of England Quarterly Inflation Report
11:00 GBP BoE MPC Vote Unchanged
11:00 GBP Bank of England Minutes
11:00 GBP BoE MPC Vote Hike
11:00 GBP BoE MPC Vote Cut
11:30 GBP BoE’s Governor Carney speech
12:30 USD Continuing Jobless Claims (Apr 19)
12:30 USD Initial Jobless Claims (Apr 26)
12:30 USD Nonfarm Productivity (Q4)
12:30 USD Unit Labor Costs (Q4)
14:00 USD Factory Orders (MoM) (Mar)
17:30 EUR German Buba President Weidmann speech (Germany)
17:30 EUR ECB’s Praet speech
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