May 29, 2024

“This week’s headline macroeconomic data kicks off today with German inflation, as investors gear up for eurozone and US inflation gauges that will cause the biggest impact on Friday. The dollar is clawing back some of its losses this morning, but sterling and the euro remain around their highest levels in some months.”

Tim Hallinan – Trading Director

Main Headlines

South Africans go to the polls today in what could be the most competitive election in decades, where the ruling ANC party could lose its majority for the first time since the end of apartheid. Unemployment, poverty, crime, and rolling blackouts in recent years have dented confidence in ANC, and opposition parties such as the Democratic Alliance are seeking to capitalise on the ANC’s woes.

On Wednesday, Royal Mail’s parent company, International Distributions Services (IDS), confirmed it had accepted a £3.57 billion takeover bid from Czech billionaire Daniel Kretinsky. The agreement includes commitments to uphold the Universal Service Obligation, protect employee benefits and pensions, and keep Royal Mail’s headquarters and tax residency in the UK.

GBP

Sterling has conceded some ground to the dollar over the past 24 hours but remains firm on the crosses, propped up by expectations for a later cut – now in the autumn rather than next month – and the highest short-term bond yields since February. This tailwind has pushed GBP/JPY through the 200 mark this week for the first time in 16 years, and GBP/EUR is trading within a whisper of a nine-month high. The data calendar is light, so new direction is relying on adjustments to interest rate expectations elsewhere, likely to be spurred on by inflation figures in the eurozone and US this week.

EUR

A German CPI print this afternoon should provide the euro with some more concrete direction today. As widely discussed, a rate cut at next week’s meeting is all but a foregone conclusion – the bar is very high for Friday’s eurozone inflation data to cast doubt on that – but it can certainly be consequential for the pace of further cuts from July onwards. The ECB’s Knot suggested yesterday that gradual, quarterly cuts would be appropriate. The German GfK consumer climate index improved for the fourth consecutive month to a two-year high this morning, primarily due to inflation-beating wage rises. The consensus for German CPI is for an uptick from 2.2% to a still positive 2.4%, ahead of the Spanish equivalent tomorrow and the bloc-wide figure on Friday.

USD

A four-week peak for US Treasury yields have buoyed the dollar overnight, boosted by some wobbly auctions and rising consumer confidence. Soft demand for two- and five-year Treasuries sparked concerns about US sovereign debt demand and lifted the greenback’s yield advantage yesterday evening, compounding a rebound in confidence in the labour market among US consumers. The CB consumer confidence gauge rose for the first time in five months and average inflation expectations rose higher, once again stoking fears about inflationary persistence, although the report also included an increase in those expecting a recession within the next year. Discussion about further rate hikes resurfaced too yesterday, with the Fed’s Kashkari refusing to rule them out but accepting that odds are low. A speech from Williams is the only notable event on the calendar today, and traders will have their eyes on GDP data tomorrow and core PCE on Friday.

Markets

Global equities slipped slightly yesterday as a jump in Treasury yields generated some mixed performances on the indexes. On Wall St, the S&P ended flat and the Dow edged lower, but the Nasdaq was catapulted to a fresh record high by a continued Nvidia boom after its upbeat earnings release last week. The AI chip stock has surged 20% since last week’s announcement and is worth nearly $3tn.

Main Economic Events (All Times CET)

3:30am: Australian CPI Inflation
2:00pm: German CPI Inflation
10:00am: Eurozone Private Loans
7:45pm: Fed’s Williams speaks

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