Morning Report

May 14, 2024

“The US data kicks into high gear today with three notable events to warm markets up ahead of tomorrow’s hotly anticipated CPI figure. UK wage growth move higher this morning, and this is good news for real terms pay, but the picture is still one of a loosening labour market and investors are still looking forward to a summer cut.”

Tim Hallinan – Trading Director


Main Headlines

France secured a record €15bn in FDI pledges at its annual ‘Choose France’ summit in Versailles yesterday, up from the €13bn achieved last year, where Macron hosted an array of business leaders from sectors including AI, pharmaceuticals, and energy. The French President will hope the success distracts from his weak standing in the polls.

In an attempt to lift the Conservatives in the polls, British Prime Minister Sunak vowed in a political speech yesterday that he is the one to trust when it comes to keeping Britain safe in an increasingly dangerous world. He argued that Labour did not have a sufficient policy response to the ‘axis of authoritarian states’ that threaten the UK, and that his plans to ramp up defence spending and tackle illegal immigration would turn the issues around.


Mixed labour market data this morning has halted sterling’s risk-on, upward momentum. On the surface, the headline was a stark reminder of the lingering wage pressures standing in the Bank of England’s way. Wage growth defied the consensus for a further fall to 5.3% in the first quarter, rising instead from 5.6% to 5.7%. Given survey sample issues and Governor Bailey‘s specific advice warning against overinterpreting higher wage inflation, however, it has not materially changed the probability for a June cut. Taking stock of the entire report, the UK labour market is loosening, with the BoE is still seeing progress on its favoured measure of labour market tightness: the vacancies-to-unemployed ratio. Markets are hesitant to bet strongly on any particular direction for sterling, however, owing to the well-known unreliability of the ONS’ Labour Force Survey that are unlikely to be remedied until later in the year. Instead, they are looking to the April CPI next week for some clearer direction for sterling, particularly with the services component. Today, the BoE’s Huw Pill speaks this morning and then it’s over to the US for inflation data.


One of the biggest debates in April was whether an early rate cutting cycle from the ECB would drive the euro back down to parity, but it has gained over 1.5% in a steady rally over the past month as the growth outlook has improved while the data has begun to soften in the US. The next boost to sentiment is set to come from the ZEW survey this morning, where the consensus is for an eighth consecutive monthly gain. Speeches from Knot and Schnabel today should lend a more cautious tone, however, and then it’s the headline data across the Atlantic that will guide the euro higher or lower throughout the week.


A return to life for the US macroeconomic calendar today should jolt the dollar out of its consolidative range, where it has been treading water so far this week. The NFIB Small Business Index is not usually a headline, but its leading signals about the labour market have been closely watched recently as economists try to gauge the trajectory of US inflation. Hiring plans in particular have been on a downward trend and may have predicted the recent softening in the payrolls and unemployment claims data. The dollar has been highly sensitive to PPI prints too, given the predictive power of its components for the Fed-favoured core PCE index that arrives later in the month. The consensus is for a tick up to 0.3% month-on-month, although the core figure is expected to hold steady at 0.2%, having fallen from a 0.5% peak in January. Eyes turn to Powell soon after, who is speaking at an event in Amsterdam. There is not too much room for him to add any clarity following the rate decision from a couple of weeks ago, but his views on the weaker labour market data since will be noted by traders. Tomorrow’s CPI release remains the highlight of the week and should set the tone for the rest of the month.


Stocks remain buoyant after climbing higher last week. The S&P 500 is back near its record high from March, the FTSE 100 last touched one on Friday, and Hong Kong’s Hang Seng is a standout performer, having surged by 20% in less than a month. In yesterday’s most notable move, trading in GameStop had to be halted several times yesterday due to extreme volatility as the return of the internet figure behind the 2021 surge returned to X.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth, Claimant Count Change, & Unemployment Rate
8:30am: Swiss PPI
9:30am: BoE’s Pill speaks
11:00am: German ZEW Economic Sentiment
12:00pm: US NFIB Small Business Index
2:30pm: US PPI
4:00pm: Fed Chair Powell speaks


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