June 04, 2024

“The dollar continues to break lower this week as the economic data softens. The JOLTS survey today will be critical in terms of whether this momentum continues or if the greenback can stage a recovery, while in Europe sights are set on the ECB decision on Thursday.”

Tim Hallinan – Trading Director

Main Headlines

GameStop stock surged over 100% in premarket trading yesterday, before closing around 75% higher after nearly $5bn in shares had been exchanged throughout the session. The infamous markets influencer ‘Roaring Kitty’ triggered the move after announcing a $116m bet on the retail stock.

British consumer spending was subdued in May on wet weather, according to new reports from Barclays and the British Retail Consortium. Spending growth on Barclays debit and credit cards was the weakest in over three years, and BRC retail sales grew only 0.4% year-on-year.

GBP

Sterling clinched a near 2-1/2-month high against the dollar overnight on the back of an ebbing US growth advantage. Markets seem to have taken little notice of the downside miss on today’s only data point, after BRC retail sales bounced back from a -4.4% print in April to 0.4% year-on-year in May, versus 1.2% expected. GBP/EUR is likely to remain in a holding pattern until the big ECB decision on Thursday, but there is plenty of scope for GBP/USD to move higher this afternoon if US job vacancies come in weaker than expected.

EUR

The euro is riding the weaker dollar backdrop this morning after touching its highest level since mid-March. There are few domestic events available today, beyond some German unemployment data – this keeps the US data in the driving seat, while traders await tomorrow’s final services PMI and then some fresh policy clues at the ECB’s press conference on Thursday.

In Switzerland, CPI inflation landed at 1.4% for the second consecutive month, and a modest trim of rate cut expectations this year has lifted it a bit higher this morning. The franc is now up nearly 2% against the euro in the past week and down only 5% this year, having firmly halted its decline in the second half of May on the back of an uptick in inflation and a boost to growth in the first quarter.

USD

The dollar index slipped to a two-month low yesterday on fresh signs that US economic exceptionalism could be beginning to unwind. The ISM manufacturing PMI was the trigger, which missed fairly bleak expectations and slipped further into sub-50 contractionary territory. The closely watched new orders and prices paid subindexes both undershot forecasts and prompted a little extra Fed easing to be added to market pricing for later this year. The JOLTS survey this afternoon could push markets towards a more decisive break lower in the dollar, if it lands weaker than expected and points to a loosening labour market and easing inflationary pressures. With this report, there is a focus both on the headline job vacancies rate, which continues to move lower, and also on the quits rate. The first is a more obvious signal of labour demand and has been coming into better balance with labour supply recently, and the second is a solid indicator of eventual wage growth – when workers have more confidence in quitting to find a new, better-paid job, firms are likely to bid up wages to take on and retain the workers.

Markets

Monday was choppy for equities, with investors somewhat unclear on how to interpret a slowing US manufacturing sector, which is naturally a bonus for rate cuts but a dampener on growth. The S&P 500 dipped almost 1% before regaining much of the losses. A New York Stock Exchange glitched temporarily halted trading in some stocks, including Berkshire Hathaway.

Main Economic Events (All Times CET)

1:01am: UK BRC Retail Sales Monitor
8:30am: Swiss CPI Inflation
9:55am: German Unemployment Change
4:00pm: US JOLTS Job Openings Survey & Factory Orders

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