April 29, 2024

“The yen has hit the headlines this morning with all the hallmarks of intervention from Tokyo, although we are yet to have any official confirmation. The sharp fall in USD/JPY aptly sets the tone for a data-packed week that includes eurozone CPI inflation, a raft of US labour market data, and a Federal Reserve decision.”

Tim Hallinan – Trading Director

Main Headlines

Google parent Alphabet saw its market capitalisation leap over the $2tn mark for the first time in two and a half years on Friday, after its Q1 earnings came with announcements for the company’s first dividend and $70bn in share buybacks. Shares jumped by over 10% and notched a record high.

According to several media outlets in the UK, Scottish First Minister Humza Yousaf may resign today to avoid two votes of no confidence, after the governing coalition with the Scottish Greens collapsed following the drop of several climate targets. A final decision is yet to be taken, but the Times has reported that senior party officials have approached former SNP leader John Swinney to take over in the interim should Yousaf resign today.

GBP

Sterling’s steady recovery has followed through into this week, having reclaimed nearly 2% in losses since touching a year-to-date low around a week ago. The pound took a sizeable hit from the trimming of Fed rate cut bets and some particularly optimistic rhetoric from Bank of England officials, both of which gave a brief taste of what a sterling sell-off could look like if inflation falls more quickly than expected. But a chorus of more hawkish central bank speakers since have kept traders wedded to the August cut and few extra priced in for the rest of the year. Pound traders will be firmly focused on the raft of headline US and eurozone data this week in the absence of any substantial economic newsflow in the UK, with the Bank of England rate decision next week firmly in the back of their minds.

EUR

The market is looking for a fresh set of cool inflation data this week that should keep the ECB on track to cut in June, barring any surprises in the data next month. We have had the Spanish CPI report land below expectations at 3.3% to dent the euro slightly this morning, while the German equivalent is expected to tick up from a low base to 2.3% this afternoon. The market expects a repeat of March’s 2.4% headline eurozone figure tomorrow morning, while the core measure, which strips out the volatile food and energy components, is pencilled in for a sharp fall from 2.9% to 2.6%. This deceleration should be more than enough for swap traders to double down on their bets for a cut in June, given that speakers from the ECB have all but moved on from the June debate to discussions about whether one will follow in July. We get some more speeches this week, too, with Lane and de Guindos among those giving their views today.

USD

A fresh hot inflation report helped to firm the dollar on Friday as the Fed-favoured core PCE gauge came in as expected at 0.3% month-on-month. The quarterly data released on Thursday alluded to a strong March print and had already spurred a fresh jump in US yields and another test of 5.00% by the two-year. Few were surprised, however, and the data primarily bolstered the likelihood that the Fed will not cut until later in the year. It has slipped 0.5% this morning, however, in a move helped by likely intervention in the USD/JPY market by Japanese authorities, which triggered a sharp 5 yen drop in the pair over a 1.5-hour period early this morning after it pierced through 160 for the first time in 34 years. This week’s data diary is particularly heavy, with traders set to scrutinise labour market indicators for any sign that some of the softer survey signals could start to emerge in the hard data, particularly with Friday’s non-farm payrolls report. Before then, we have JOLTS, the quarterly wage cost data, a Federal Reserve decision, and the ISM PMIs.

Markets

US tech giants dragged equity indices higher towards the end of last week as impressive earnings from Microsoft and Alphabet outweighed concerns about slowing US growth momentum – the S&P 500 has now recovered around half of the >5% dip suffered in the first half of April. In the commodities world, brent crude oil has fallen around 1% on talks of ceasefire negotiations in the Middle East.

Main Economic Events (All Times CET)

8:00am: Swedish GDP & Retail Sales
9:00am: Spanish Flash CPI
2:00pm: German Flash CPI

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