April 15, 2024

“FX kicked into a higher gear last week and volatility is on an uptrend as diverging central bank trajectories and geopolitical risks generate some jittery trading. The pound should have the busiest week this time around with wage growth and CPI to feature, although we’ll be keeping a close eye on the geopolitical backdrop.”

Tim Hallinan – Trading Director

Main Headlines

In the first quarter of 2024, Apple experienced a 10% decline in smartphone shipments, according to data from research firm IDC, due to heightened competition from Android smartphone manufacturers vying for market dominance. Despite Apple’s decline, global smartphone shipments increased by 7.8% to 289.4 million units during January-March. Samsung emerged as the top phone maker, surpassing Apple, with a market share of 20.8%.

In 2023, property insurance payouts in Britain surged to £4.86 billion, marking an 18% increase from the previous year, according to the Association of British Insurers (ABI). Weather-related home damage claims soared to a record high of £573 million, representing a 36% rise. The increase was attributed to a series of storms that battered homes, causing damage from high winds, storm debris, flooding, and burst pipes.

GBP

Despite a good week on the crosses, rallying US yields spurred sterling’s worst week against the dollar since July as it hovers around its lowest level since mid-November. It has a big week ahead, beginning with some closely watched wage growth data tomorrow morning. The pound slid when this measure slipped to 5.6% last month, and the consensus points to another modest decline to 5.5%. As the BoE’s Catherine Mann is keen to emphasise, however, it still sits well clear of the range compatible with 2% inflation. CPI inflation on Wednesday is then expected to fall from 3.4% to 3.1%, which would put headline UK inflation now lower than in the US, although the underlying measures remain relatively stickier.

EUR

Last week’s 1.8% decline was one to forget for the euro. While US disinflation stalled and pushed back bets for a cut to September, the ECB formally announced that it’s likely to go it alone with a rate cut in June. As a result, the yawning gap between 2-year US and German bond yields is now at its highest since the second half of 2022. ‘Divergence’ is the buzzword floating around at the moment, given that expectations for the ECB had been relatively anchored to those for the Fed for the majority of this year so far. The week is rather light for the eurozone, but we do get some industrial production data this morning, which should land firmly in the green after a bleak 3.2% decline last month. ZEW economic sentiment data also comes tomorrow, and a handful of ECB speakers should give some more clarity on the criteria for the June cut alluded to last week.

USD

After high inflation and rocketing bond yields drove the dollar to its best week since 2022, trading in the greenback this morning has been rather muted. Iran’s strike on Israel over the weekend was a clear escalation in geopolitical risk – something which usually directs safe-haven flows to the dollar – but there has been little direct market impact. This suggests that either the risks were largely priced in before the close of play last week, or that markets ultimately breathed a sigh of relief that the attack was more of a calculated warning shot. Ballooning yield spreads between the US and its peers remains the key theme being traded on right now – nevertheless, this is a dollar-positive environment and FX volatility has jumped to its highest levels since February.  This week is altogether a bit quieter than the last, and the data highlight is retail sales this afternoon, which should ease slightly to 0.4%. We also get some industrial production figures and a wide variety of Fed speakers to keep markets busy.

Markets

World stocks slipped and the S&P 500 fell for the second week in a row last Friday, battered by blazing US inflation data and some lacklustre US bank earnings. JP Morgan shares slumped by the most in a day for nearly four years, while risk sentiment also took a beating from expanding geopolitical tensions in the Middle East, sending the VIX gauge of equity volatility to the highest in five months.

Main Economic Events (All Times CET)

11:00am: Eurozone Industrial Production
1:15pm: BoE’s Breeden speaks
2:30pm: US Retail Sales

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