April 02, 2024

“The dollar has shot up to its highest levels since mid-November over the weekend, as rate cut risks subside and the US economy remains as strong as ever. Eurozone CPI and US jobs data will guide the markets this week, and so too will an array of central bank speakers who will give us some clues as cuts edge closer.”

Tim Hallinan – Trading Director

Main Headlines

On Tuesday, a Dutch court is scheduled to hear Shell’s appeal against a significant climate ruling that mandated the company to substantially intensify planned reductions in greenhouse gas emissions. The 2021 ruling instructed the oil and gas giant to slash its carbon emissions contributing to global warming by 45% by the year 2030 compared to 2019 levels.

The British government will slow its efforts to lever minimum wage hikes as a means to narrow the wage disparity between low-income workers and those earning higher wages, providing some respite to employers following this year’s substantial increase of nearly 10%. Scheduled for this month, the minimum wage for workers aged 21 and over will climb to £11.44 per hour – one of the highest among developed economies.

GBP

Sterling has consolidated around a five-week low overnight following a 0.5% slip against a climbing dollar yesterday. Shop price inflation data released by the British Retail Consortium this morning fell sharply to 1.3% and its lowest level in over two years, in an encouraging sign for policymakers ahead of the March inflation data in a couple of weeks. The economic calendar for the pound is relatively quiet this week but we do get some speakers from the Bank of England and some final PMI data – the manufacturing PMI gets its last revision for March this morning, which landed within a whisper of the critical 50.0 mark in its first iteration last month.

EUR

The euro has slipped to its lowest levels since mid-February as US rates extend their advantage and inflation continues to realign with the ECB’s target. French and Italian CPI both read lower than expected last Friday at 2.3% and 1.3% respectively, setting the bloc-wide figure up for another soft print tomorrow and keeping the ECB on target for a first rate cut in June. The German equivalent comes this afternoon after releases in from individual regions throughout the morning – the consensus points to a soft 2.2% result here too, falling from 2.5% in February. We will need some stark disinflationary signals over the next couple of days to put a cut on the table at next week’s policy decision, with the June cut the most widely expected.

USD

The dollar is trading a touch below a four-and-a-half-month peak, having tracked widening rate differentials higher over the long weekend. The greenback’s bullish fundamentals are as strong as they have been this year and, despite Powell sticking to his relatively dovish tone on Friday, there is a general agreement that the data is yet to really provide an entry point for Fed rate cuts. Bets are still on for a June cut, but these were trimmed again yesterday after a particularly strong ISM manufacturing PMI print that leapt into expansionary territory for the first time since late 2022, sending US yields rocketing. The next clue will come from this afternoon’s JOLTS Job Openings survey – an indicator of labour demand – which is set for another solid reading that should reaffirm the slowly abating inflationary pressures in the labour market. We also get some speeches from the Fed’s Williams, Mester, and Daly this evening to give some indications on the wider thoughts in the FOMC beyond Powell and Waller.

Markets

Equity trading has been relatively muted at the beginning of the week. The US 2- and 10-year Treasury yields both rose around 10bps yesterday while the S&P 500 slipped modestly by 0.2%. Euro Stoxx 600 futures are pointing to a slightly higher open this morning after closing at a record high last week following a 7% surge in the first quarter.

Main Economic Events (All Times CET)

1:01am: UK BRC Shop Price Index
8:30am: Swiss Retail Sales
10:00am: Eurozone Final Manufacturing PMI
10:30am: UK Final Manufacturing PMI, Mortgage Approvals, & Net Consumer Lending
2:00pm: German CPI Inflation
4:00pm: US JOLTS Job Openings
4:10pm: Fed’s Bowman speaks
6:00pm: Fed’s Williams speaks

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