April 04, 2024

“After another deluge of strong data, the US ISM services PMI signalled a softening US economy and easing price pressures yesterday, catalysing a 0.5% weakening in the dollar. Fed speakers are the focus today, although most are laser-focused on tomorrow’s non-farm payrolls report.”

Tim Hallinan – Trading Director

Main Headlines

A WSJ poll released yesterday revealed that Republican Donald Trump has surged ahead of President Joe Biden in six pivotal battleground states, as concerns about the US economy and Biden’s performance have bolstered Trump’s lead. Across key states such as Pennsylvania, Michigan, Arizona, Georgia, Nevada, and North Carolina, Trump commanded a lead ranging from 2 to 8 percentage points among polled voters.

Meanwhile in the UK, a YouGov seat projection released on Wednesday suggests that Prime Minister Rishi Sunak’s Conservative Party is bracing for a substantial defeat in the upcoming national election. According to the projection, the opposition Labour Party appears poised to secure a commanding lead with over 400 seats, while Sunak’s Conservatives are forecasted to clinch only 155 seats.

GBP

A 0.5% boost from a receding dollar further lifted sterling from its seven-week lows yesterday. The UK economic calendar is in a bit of a lull at the moment, and so the pound has been moving according to the key events driving its peers. This morning, the only data point is the final services PMI, which slipped slightly in the first estimate but remained well within expansionary territory at 53.4 – a repeat of Tuesday’s manufacturing upgrade would bolster the UK growth outlook’s transition from a headwind to a tailwind for sterling, after notching a technical recession late last year.

EUR

Undeterred by a sub-consensus inflation print yesterday, the euro is trading around 1% higher against the dollar than in its trough on Tuesday, while it continues to grind out modest gains against the pound. Euro area CPI inflation slipped from 2.6% to 2.4% in March, but the inflationary undershoot had been well signposted by low prints in France, German, and Italy, muting the market impact. Inflation is now edging glaringly close to the ECB’s 2% target and many suspect that there will be some significant dovish dissent within the Governing Council next week, where the more dovish policymakers will be asking what more evidence will really be required to kickstart the cutting cycle. Markets still look for a cut in June, however. The finals services PMI for March arrives today alongside of the minutes from the ECB’s previous monetary policy decision. Elsewhere in Europe, the Swiss franc slumped 0.5% after inflation fell to its lowest level since October 2021 at 1.0% year-on-year, having remained stable in the month of March.

USD

A soft ISM services PMI print dominated FX yesterday. The headline index eased from 52.6 to 51.4 in defiance of expectations for an improved result, but it was the falling prices paid index that really took a 0.5% chunk out of the dollar. After spiking to 64.0 in January, it fell to a four-year low in March, hinting at an incoming easing in services inflation that should provide an entry point for policymakers to initiate rate cuts this summer. While we were also treated to a speech from Fed Chair Powell, he used the opportunity to hone his – now very familiar – balance of optimism and caution, again playing down recent sticky inflation prints and looking towards cuts this year but also emphasising that more data is needed. On today’s diary we have jobless claims and around seven further Fed speakers, who can hopefully provide some clearer clues on sentiment within the FOMC in general.

Markets

In the world of commodities this week, gold is at a fresh all-time high, oil has surged to a five-month peak at $89, and copper has breached a 13-month high, lifted by improving activity in the Chinese economic data. A falling yen tacked on 1.6% to the Nikkei 225, while easing inflationary concerns helped the major European and US stock indexes to close higher yesterday.

Main Economic Events (All Times CET)

8:30am: Swiss CPI
10:00am: Eurozone Final Services PMI
10:30am: UK Final Services PMI
1:30pm: ECB Monetary Policy Meeting Accounts
2:30pm: US Unemployment Claims
6:15pm: Fed’s Barkin speaks
8:00pm: Fed’s Mester speaks

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