April 30, 2024

“There has been no official confirmation yet, but suspected market intervention by Japanese authorities to shore up the yen posed a headwind for the dollar yesterday. A hawkish wage growth reading this afternoon could push it back to last week’s levels, while the euro’s session today will depend on whether the current pace of disinflation can be sustained.”

Sam Cornford – Head of Trading

Main Headlines

Tesla shares surged over 16% yesterday after CEO Elon Musk returned from a weekend trip to Beijing where he pushed towards rolling out the EV company’s driver-assistance software in the world’s second largest economy. Tesla’s market capitalisation leapt by over $90bn in a welcome boon for the wobbling Wall Street stock.

British shop prices increased at the slowest pace since December 2021 in April, according to the British Retail Consortium, in a further sign that disinflation is well on its way in the UK. It slowed from an annual rate of 1.3% in March to 0.8% in April.

GBP

Sterling has pared some gains this morning after riding higher yesterday on improved risk appetite and lower yields in the eurozone and the US. Data released at the end of last week showed that net long non-commercial positions in sterling – bets placed in the market by speculative traders that sterling would appreciate – were unwound at record pace in the week up until last Tuesday, following some optimistic speeches from Ramsden and Bailey that ignited wagers for summer rate cuts. Speculators are now net short – they are betting on the pound to weaken. On today’s diary we get mortgage approvals and consumer lending data for some clues on credit conditions, but it is primarily external developments in mainland Europe and the US that will guide the pound.

EUR

The consensus for a stable 2.4% inflation print in the eurozone should put the path after a June cut at the centre of debate today for the ECB, although this estimate could be tested to the upside after both the French and German harmonised CPI figures landed higher than expected. A stall in the headline figures masks a likely fall in the eurozone-wide underlying core measure, however, that should easily clear the low bar for policymakers to remain on course for a cut at the ECB’s next meeting – markets are looking for a deceleration from 2.9% to 2.6% here. We also get the flash GDP estimate for the bloc this morning, which should post some meagre 0.1% growth that will no doubt keep up the urgency for rate-setters to ease policy and to stimulate the flagging eurozone economy.

USD

Dollar-selling by Tokyo, a pullback in bond yields, and rallying equities produced a dollar-negative cocktail yesterday, but wage growth data today could see its bullish momentum return if it signals a more hawkish Fed at tomorrow’s press conference. The Fed-favoured wage gauge – the employment cost index – is expected to show an uptick in quarterly salary growth from 0.9% to 1.0% this afternoon, more or less reinforcing the narrative of still elevated inflation that should prime Powell to retain his caution tomorrow evening. The consensus has pencilled in a slight cooling in the CB consumer confidence index a few hours later – optimism recently peaked at 114.8 in January, but has steadily cooled since as Fed rate cut bets have been rapidly pared back, with 104.0 expected today.

USD/JPY should remain in the headlines again today after the BoJ likely intervened yesterday. What looked like two or three waves of dollar-selling left the rate down by 4 yen, but it has grinded higher since – this suggests that Tokyo may embark on a series of interventions to materially impact traders’ behaviour. Currency diplomat Kanda has refused to admit responsibility today, but stressed that they are ready around the clock to strike against ‘speculative, rapid, and abnormal’ market moves.

Markets

Chinese stocks have hit a six-month high as concerns around its faltering property sector has ebbed, boosted also by Elon Musk’s visit to Beijing over the weakened. Wall Street edged higher yesterday while European indices slipped slightly. US equities in particular are set for a whirlwind day, with macroeconomic data and earnings from the likes of Amazon, Wells Fargo, and Citigroup among others.

Main Economic Events (All Times CET)

3:30am: Chinese PMIs
10:30am: UK Mortgage Approvals & Consumer Lending
11:00am: Eurozone CPI & Flash GDP
2:30pm: Canadian GDP
2:30pm: US Employment Cost Index
4:00pm: US Consumer Confidence

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