March 11, 2024

“Sterling’s impressive run will be tested by some headline UK data this week, after its quiet calendar allowed it to become the best performing currency in the G10 this year unchallenged. US CPI will be the most closely watched event across markets, however, and should give some further clues towards a potential cut in June.”

Sam Cornford – Head of Trading

Main Headlines

Portugal’s centre-right Democratic Alliance (AD) emerged victorious in Sunday’s general election, its leader Luis Montenegro has announced. However, the prospect of governing without seeking support from the far-right Chega party remains uncertain, with whom Montenegro reiterated his refusal to engage in negotiations. Chega’s parliamentary representation surged significantly, with at least 48 lawmakers securing seats in the 230-seat legislature, potentially providing the combined right-wing bloc with a majority.

The Japanese economy narrowly avoided a technical recession after an upward revision to Q4 GDP data that was smaller than expected. Revised GDP grew at an annualised 0.4% in the quarter, up from an initial estimate of a 0.4% contraction. The new data is more statistical noise than consequential cue for the world’s third biggest economy, but signs of stabilisation will likely bolster hopes that the Bank of Japan exists negative interest rates next week.

GBP

Sterling has been on an incredible run in March largely under the radar, as the dull British news flow has allowed it to trade steadily higher on softening data elsewhere. It rocketed to a 7-month high against the dollar on Friday and notched a 1.6% weekly gain while eurozone and US policymakers bolstered hopes for a first rate cut as soon as June. It will face some significant domestic tests this week, however, beginning with tomorrow’s claimant count change and wage growth data, followed by Wednesday’s GDP print. The Bank of England’s strong emphasis on tackling price pressures in the labour market will draw particular attention to the jobs data tomorrow, which are expected to remain strong, although markets are likely to take it with a pinch of salt given the data quality issues of late.

EUR

A largely uneventful ECB decision on Thursday allowed the euro to tick up by almost 1% versus the dollar last week, in parallel with its major peers. The press conference gave some strong clues towards the ECB’s reaction function and allowed markets to more confidently zero in on the June meeting for the first rate cut, but ultimately dented the euro only slightly as the US data took precedence. This week’s economic calendar is barren for the eurozone and puts the focus on external impulses, although the bloc-wide industrial production figure and final CPI prints from Germany and France will give investors something to think about.

USD

Powell and payrolls dealt the dollar index its worst weekly blow since December as traders became increasingly confident that rate cuts could start in June. Powell’s undeterred confidence that dialling back policy was still on the agenda this year and a softened jobs report on Friday sliced 7bps off the 2-year Treasury yield and upped the implied probability for a cut in June to 75%. The non-farm payrolls report was packed full of mixed signals to digest, but the details ultimately indicated a continued softening in the labour market that knocked the dollar further. The headline payrolls figure of 275K surpassed estimates, but 167k were revised away over the past two months and the unemployment rate ticked up to 3.9% after holding at 3.7% for three months. The big question for this week is if tomorrow’s CPI print for February backs up last week’s dovish developments or contradicts them – the consensus is for a repeat 3.1% figure.

Markets

The equity markets cooled off on Friday, with the S&P 500 down 0.7% and Nasdaq 1.2%, tipping both into negative territory for the week for only the third time in 19 weeks. Stock futures and Asian markets have eased slightly further this morning ahead of a cautious pre-CPI start today.

Main Economic Events (All Times CET)

00:50am: Japan Final GDP q/q
9:00am: Swiss SECO Consumer Climate

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