May 28, 2024

“The markets are off to a positive start this week in anticipation of a weaker US inflation figure on Friday, as much of the G10 takes back the ground lost last week. The economic data this week should help to clear up both how the ECB is likely to proceed after next week’s rate cut, and whether the Fed will get an entry point to join them later this year.”

Sam Cornford – Head of Trading

Main Headlines

US markets officially transition to T+1 trade settlement today, with regulators poised for hiccups as traders and asset managers are forced to drastically pick up the pace in completing transactions in North American securities. Canada, Argentina, and Mexico also joined the US in exiting T+2 yesterday.

The UK election candidates have begun their campaign trails with new pledges, with incumbent Prime Minister Rishi Sunak announcing plans for national service for 18-year-olds and promising to cut taxes for pensioners. Keir Starmer, meanwhile, said that he would like to recognise a Palestinian state, and gave a first major speech over the weekend arguing that he had completely changed Labour and would put ‘country first, party second’.

GBP

A risk-positive environment has broadly benefitted sterling over the past couple of days after markets brushed off Friday’s disappointing retail sales report, touching a fresh two-month high against the dollar this morning. Retail consumer spending slumped by 2.3% in April, but given the influence of wet weather on footfall and the positive signals in other data, markets were little concerned about the growth outlook. Last week’s data deluge is over for sterling, and we’ve moved on to a quieter calendar – the focus will be on the big inflation data in the US and eurozone. Today, the CBI realised sales index is the only event in the diary, and markets will be looking out for election pledges from Sunak and Starmer throughout the week.

EUR

Despite dovish commentary from ECB policymakers dominating the headlines yesterday, the euro has already fully recovered last week’s losses against the dollar and swiftly bounced from a nine-month low versus sterling yesterday. While Philip Lane was slightly more cautious as he called for a ‘meeting-by-meeting’ approach after next week’s cut, Villeroy went all in arguing that there is significant opportunity for the ECB to continue slashing rates. The ECB inflation expectations survey is the highlight today and could have an impact on expectations for the post-June rate trajectory, which is particularly unclear for markets at the moment. This puts heavy weight on Friday’s CPI release for May, preceded by the German and Spanish equivalents tomorrow and on Thursday.

USD

While a strong set of PMI indicators led to a fresh bout of rate cut bet shedding towards the end of last week, the prospect of a weaker core PCE print this Friday is shielding the rate differential headwinds and depressing the dollar in the early stages of the week. Last week’s gains have fizzled out already as markets position themselves again for a US soft landing and rotate capital into riskier assets as a result. The driving force is the expectation for the Fed-favoured core inflation gauge to tick back down to 0.2% month-on-month for the first time since December when it lands on Friday, which would be a welcome relief for Fed policymakers looking to cut rates later in the year. The CB consumer confidence figure is the most important event today, where the consensus is looking for a fourth consecutive month of decline in the index.

Markets

Buoyant risk appetite has the UK and US set for some positive trading early in the session as markets wake up from the long weekend. A healthy earnings season is done and dusted now, so equity traders are back to Fed- and risk-watching for their directional cues.

Main Economic Events (All Times CET)

1:01am: UK BRC Shop Price Index
3:30am: Australian Retail Sales
6:55am: SNB Chairman Jordan speaks
12:00pm: UK CBI Realised Sales
4:00pm: US CB Consumer Confidence

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