April 19, 2024

“Geopolitical concerns have fired up some volatile swings this morning as murky details generate some uncertainty in the markets. A poor UK retail sales report was somewhat lost in the noise, but some Bank of England speakers this afternoon should give the pound some cues.”

Tim Hallinan – Trading Director

Main Headlines

India commenced voting in the world’s largest election on Friday, with Prime Minister Narendra Modi vying for an unprecedented third term. This massive electoral process, involving nearly one billion voters, will unfold over seven phases across India, spanning the peak of summer. The voting period extends until June 1, with votes tallied on June 4.

The Financial Conduct Authority (FCA) announced on Thursday that financial firms serving customers in Britain from overseas must ensure that their executives spend an ‘appropriate’ amount of time in the UK. This requirement is part of the ‘overseas persons exclusion,’ which permits non-UK-based financial firms to provide wholesale market services to UK customers without formal authorisation.

GBP

A stagnation in UK retail spending in March was an overshadowed theme this morning, as geopolitical confusion spurred a downward swing followed by a swift recovery. A brief flight-to-safety saw sterling touch a fresh five-month low against the dollar as reports initially emerged about an Israeli retaliation, before the softer details provided a wave of relief that lifted the riskier currencies back up. The retail sales report reminded markets that the UK’s economic recovery will be bumpy, coming in at 0.0% versus hopes for a 0.3% expansion. Meanwhile, the BoE’s Greene returned to the podium yesterday to stress the recessionary risks of a stop-start cutting cycle that could result if cuts are commenced too early, as she pushed back against those betting on imminent rate cuts. Tuesday’s sticky wage growth and Wednesday’s CPI inflation beat amount to a relatively hawkish picture for the Bank of England overall, although Bailey’s dovish comments and a likely fall in inflation next month have kept the pound lingering near its year-to-date lows.

EUR

The euro mirrored the rollercoaster ride of its peers against the dollar this morning and inched marginally higher against a softer pound. The eurozone data calendar has concluded for the week, with only a speech by the ECB’s Nagel this evening on today’s diary. The focus is really on Tuesday’s purchasing managers surveys to give a fresh view on the eurozone economy, whose woes have been bottoming out in the first quarter but remain a factor weighing on the common currency. Expect geopolitics to remain in the driving seat today.

USD

The dollar index is set for a marginal gain this week, having consolidated the near-2% jump from last week’s sharp recalibration of the Fed’s rate trajectory this year. The greenback – alongside its familiar safe-haven peers: the Swiss franc and the Japanese yen – surged this morning as fears grew of a wider war in the Middle East region, although the eventual realisation that events were on the relatively more benign end of the scale meant that markets promptly unwound these gains in the hours afterwards. As in most of these risk averse scenarios, it was the more illiquid, risk-sensitive currencies that sank the most, with NZD and AUD temporarily suffering losses near 1%. The Fed’s Williams dented risk sentiment too yesterday, arguing that there is not yet a case to begin cutting rates and that policy would need to remain restrictive for as long as the data makes it necessary. Today is likely to be dominated by geopolitics, but next week comes with a raft of top tier US data, including the PMIs, Q1 GDP, and core PCE inflation.

Markets

The poor week for equities continued yesterday as Fed officials continued to dish out hawkish commentary and some mixed earnings rolled in. Reports of an Israeli retaliation in Iran triggered a brief, knee-jerk move this morning, boosting the familiar favourites including oil, gold, and US Treasuries at the expense of riskier assets.

Main Economic Events (All Times CET)

1:30am: Japanese Core CPI
8:00am: UK Retail Sales
4:15pm: BoE’s Ramsden speaks
6:30pm: BoE’s Mann speaks

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