April 09, 2024

“The market reaction to the US jobs report on Friday has been curious, with the dollar now trading lower than before the release despite the number far surpassing expectations. The CPI release tomorrow will be the biggest catalyst for the greenback this week.”

Tim Hallinan – Trading Director

Main Headlines

President Joe Biden aims to reignite interest in a plan to develop the first high-speed rail system in the US using Japanese bullet trains in Texas, according to Reuters sources this morning, which Biden is expected to discuss with the Japanese prime minister in Washington this week. Nippon Steel’s potential buyout of US Steel is a sore topic for the two, however, and hangs over the talks.

The British Retail Consortium reported that food spending in Britain surged last month, driven by an early Easter, resulting in the highest retail sales increase since August at 3.5%. However, overall consumer demand remained subdued as wet weather dampened interest in other goods.

GBP

Sterling tracked much of the G10 higher against the dollar yesterday as it continues to resist the effects of surging US yields. The highest BRC retail sales figures in eight months have handed a small boost to the pound this morning in yet a further sign of a revival in the UK growth outlook. The evidence is mounting that the Bank of England is now well in the clear in terms of being unlikely to be swayed towards cuts by a weak economy, putting the emphasis squarely on the inflation and wage growth data. With another quiet day ahead, the pound’s direction this week is set to be dictated by US CPI tomorrow and the ECB decision on Thursday.

EUR

All eyes are on Thursday’s monetary policy decision for the euro. Investor sentiment in the eurozone leaped to a two-year high in April according to a survey by Sentix yesterday which, alongside a catch-up in bond yields, helped the common currency to tick higher yesterday. The quarterly ECB bank lending survey is the only notable event today for the eurozone, with investors waiting on US CPI and the ECB decision to spark fireworks in the FX markets tomorrow.

USD

The dollar index has struggled to draw any strength from the surge in US yields on the back of Friday’s blowout payrolls release. The 2-year and 10-year yields are at their highest levels in more than four months, the Fed is now not set to cut until at least July, and yet the markets have proven unwilling to trade the dollar higher. Other drivers have begun to dent the dominance of yields, with markets increasingly becoming comfortable with the fact that growth is improving while rates are set to remain high – the resulting stability in risk sentiment has dulled the dollar’s momentum. At the same time, the anchoring of expectations for the timing and pace of rate cuts across the G10 to that of the Fed meant that eurozone yields quickly caught up yesterday. Today, we get the NFIB Small Business Index, which is expected to edge lower. CPI inflation tomorrow remains the critical piece of data to guide the dollar this week, however.

Markets

Stocks defied rising US yields to rise across Europe yesterday and finish flat on Wall Street as risk sentiment stayed resilient despite trimmed bets for Federal Reserve easing. Meanwhile, industrial metals are in focus this week, with the likes of silver, copper, and aluminium surging on hopes that global manufacturing activity is set for a rebound this year.

Main Economic Events (All Times CET)

1:01am: UK BRC Retail Sales Monitor
7:00am: Japanese Consumer Confidence
12:00pm: US NFIB Small Business Index

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