April 22, 2024

“The pound has slumped to fresh year-to-date lows on the back of some particularly dovish comments from the Bank of England’s Ramsden on Friday. The US is in focus this week, however, with Q1 GDP and core PCE set to give the final major pieces of data before the Federal Reserve’s May meeting next week.”

Sam Cornford – Head of Trading

Main Headlines

Tesla, facing declining sales and heightened competition in the EV market, has slashed prices in key markets such as China, Germany, and the United States, amid increased competition from Chinese manufacturers. The price reductions follow Tesla’s recent announcement of a drop in global vehicle deliveries for the first time in nearly four years.

Thames Water, grappling with significant financial hurdles, has proposed allocating an additional £1.1 billion toward environmental projects over the next five years. This move is part of an updated business strategy aimed at gaining regulatory backing. With a £16 billion debt load, the company faces the looming threat of nationalisation, after its existing business plan was harshly criticised by stakeholders last week.

GBP

Sterling is languishing around a five-month low versus the dollar and a more than three-month low against the euro, after the Bank of England Deputy Governor Ramsden piled on the dovish commentary with shrinking concerns about domestic inflationary pressures. He suggested that inflation might come down to 2% in Q2 and then stay there for the next several years, unlike the bank’s forecasts that had suggested it would rise back to 3% in the second half of the year. The markets ratcheted up their rate cut expectations to more than two this year as a result, and sterling notched its sharpest daily fall against the euro this year. It’s PMIs week this week and we’ll get a fresh view on British economic activity tomorrow morning, after both the manufacturing and services sectors returned to expansion in the first quarter.

EUR

Cooling geopolitical concerns have handed the euro some support to begin the week. Its knee-jerk slump after reports of an Israeli strike on Friday morning was swiftly recovered as both sides played down the risks of further escalation. The ECB’s Villeroy said in an interview yesterday that conflict in the Middle East is unlikely to delay cuts without a much sharper rise in energy prices, and he suggested that the first June cut would be followed by a series of ‘pragmatic’ cuts in the second half of the year. As mentioned last week, policymakers made it relatively clear that a June cut was on the way in the speeches at the IMF Spring Meetings – the debate now really depends on how the policy outlook is expected to evolve afterwards. The PMIs are the highlight for the euro tomorrow too this week, which printed in expansionary territory for the first time since May 2023 last month. President Lagarde speaks at Yale this afternoon, and a few of her colleagues are set to take to the podium later in the week.

USD

A bucketload of top tier US data will keep traders busy this week. The greenback has softened somewhat from its peaks, as markets price out some of the geopolitical risks that spurred a safe haven bid last week. Thursday’s GDP data will be a big release, with markets looking for a 2.5% annualised pace of expansion in Q1 to reconfirm the red-hot US economic growth that is posing a challenge for policymakers trying to keep a lid on inflation. The Fed-targeted core PCE inflation measure then comes on Friday, and the consensus is for a repeat 0.3% month-on-month core PCE print to keep central bankers wary of cutting rates too soon. The data will be the sole focus for the dollar too, as a Fed speaker blackout is underway ahead of next week’s meeting.

Markets

An easing of geopolitical nerves over the weekend has European equities set to follow their Asian peers this morning in unwinding some of the losses from last week – the UK’s FTSE 100 is set for the biggest bounce back, with futures signalling a jump of more than 1%. The reversal of these haven flows has pulled oil, gold and the dollar off their peaks too.

Main Economic Events (All Times CET)

1:00am: Australian Flash PMIs
3:15am: Chinese Loan Prime Rates
12:00pm: UK CBI Industrial Order Expectations
4:00pm: Eurozone Consumer Confidence

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