June 28, 2024

“The US election has officially begun to capture some market attention after the first presidential debate last night. Inflation is back on the agenda today, and markets will be looking to adjust their expectations for the Federal Reserve with the core PCE data this afternoon.”

Tim Hallinan – Trading Director

Main Headlines

US President Joe Biden’s wobbly performance at the first presidential debate last night has raised questions among some Democratic strategists and fundraisers about whether he should be replaced ahead of the November election, with one describing the debate as a ‘disaster’ to Reuters. 67% in a poll put Trump as the winner, despite him repeating many known falsehoods according to factcheckers.

European Union leaders have nominated Ursula von der Leyen for a second five-year term as president of the European Commission, in a decision announced in the early hours of this morning. Von der Leyen’s leadership must now be approved in an EU Parliament ballot.

GBP

An upward revision to Q1 GDP growth has nudged the pound higher this morning. The original 0.6% figure, which blew away market expectations at the time, has become 0.7% in another positive sign for the UK’s economic rebound this year. It’s a running rate of around 2.5-3.0% annually – nearly twice as fast as US growth in the same period. This is a rebound from a low base, however, and the recent PMI and monthly GDP data suggest that this growth convergence story is likely to have fizzled out in the second quarter. There is little in the way of domestic cues today, and the real impact for sterling is likely to come when the election blackout is lifted and BoE speakers can break their silence on the prospects for an August rate cut.

EUR

The euro is trading a touch softer this morning as the French election nears and some cooler inflation prints roll in. US inflation will guide the common currency this afternoon, and then it’s down to the first round of French voting to determine the Monday open for European markets. The two-round voting system means that, where there is not a clear majority for a particular party, it’s only either the top two winners or all the parties that secured more than 12.5% of the electorate that move forward to the next vote the week after. The risk on Sunday is therefore that Macron’s third-placed centrist alliance loses a significant number of seats at the first post and sets up a showdown between the far-left and the far-right. This means that the market will be fed some more clues towards the final outcome, but it’s the second vote that has the power for the biggest impact – a far-left NFP majority is the least friendly outcome for the euro. Both French and Spanish inflation fell in May to 2.5% and 3.5% respectively, although the Spanish figure was a touch higher than expected. A slight reacceleration to 0.9% is the consensus for the Italian print, and we’ll have to wait until early next week for the German and eurozone equivalents.

USD

The dollar inched lower as the data softening trend continued yesterday, but it’s on the front foot this morning after a reassessment of Biden’s election victory chances. The weaker Q1 growth figure settled at 1.4% at the final read yesterday, while core durable goods orders contracted in May and pending home sales defied expectations for a modest recovery, instead slipping a further 2.1% after contracting by 7.7% the previous month. The election debate trimmed back the losses in the early hours, though, as Biden stumbled and upped the probability that Trump would bring in protectionist policies and a higher inflationary environment over the next four years. The consensus is looking for a 0.1% month-on-month print on the Fed-favoured core PCE inflation gauge this afternoon, which should be a welcome development for policymakers that boosts the case to begin cutting rates by September. The figure is normally well estimated using components from the CPI and PPI releases from a few weeks ago, but markets have proven to be hyper-sensitive to the second and third decimal places.

Markets

US stock futures rose in the wake of Biden’s shaky debate performance after the market close yesterday, with a perceived increased chance of a Trump victory boosting expectations for a low corporate tax and Wall Street friendly agenda over the next four years. In Asia, shares are on the cusp of posting a fifth-straight month of gains on the back of global disinflation and hopes for Fed rate cuts.

Main Economic Events (All Times CET)

1:30am: Tokyo Core CPI
8:00am: UK Final GDP q/q
8:45am: French Prelim CPI
9:00am: Spanish Flash CPI
11:00am: Italian Prelim CPI
12:00pm: Fed’s Barkin speaks
2:30pm: Canadian GDP m/m
2:30pm: US Core PCE Price Index
4:00pm: US Revised UoM Consumer Sentiment

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