IFX Market Report
Monday 24th April 2017

Market Report

Two weeks ago the GBP posted data that provided support for the currency. Inflation, and average earnings data posted well which started to ease some concern felt in the markets. The worry was that rising inflation while average earnings are reducing, would have an obvious contractionary impact on consumer spending. Consumer spending has been credited for the GBP resilience and better than expected performance in post-Brexit Britain. With the last weeks data coming in as it did hopes were high that consumer spending would also fall in line.

The following week for the GBP was meant to be quiet, with just Retail sales due on Friday. Then came the announcement from Theresa May of a snap election and the GBP soared. It stayed at multi month highs against other currencies all week. Friday came and with it Retail Sales and optimism of a better than expected result. Retail Sales hugely missed estimates (-1.8% versus a -0.2% forecast) which caused the GBP to weaken as the markets closed. The week ahead sees a lot of fundamental data but I fear the short term low and mid-level data may be overlooked as the UK gets ever closer to its pending election on 8th June 2017.

GBPEUR, with the French Vote showing Emmanuel Macron (23.9%) and Marine Le Pen (21.4%) proceeding to the final round of the French elections, the EUR strengthened considerably from reduced fears of an unexpected result. This morning we have seen significant Euro strength as a result and GBPEUR this morning opened 1.80% below Fridays close at 1.1751.

GBPUSD, the ‘cable’ rate is sitting just under where it closed last week. The slight downward move has come from anticipation of Trump’s announcement regarding Fiscal Policy on Wednesday and also the GBP posting lower than expected results from the Right move HPI (1.1% vs 1.3% in March) this morning. At present we see GBPUSD at 1.2825.

The data calendar for the pound this week includes: Monday (00:01) Rightmove House Price Index (11:00) CBI industrial Order Expectations. Tuesday (09:30) Public Sector Net Borrowing. Thursday (07:00) Nationwide Housing Prices n.s.a. (11:00) CBI Distributive Trades Survey. Friday (00:01) GFK Consumer Confidence (09:30) BBA Mortgage Approvals (09:30) Preliminary Gross Domestic Product.

Worldwide News

EURUSD, similarly to what was seen on GBPEUR, the Euro strengthened overnight as news of a Macron victory (in the first round) hit the market. The world’s largest currency pair spiked 2.37% above Friday’s closing rate of 1.0682 to 1.0935, levels which have not been seen since November 16, however the markets are presently correcting and a slightly lower rate of 1.0866 is where the pairing trades at present.

Last week the EUR direction was driven by two things, the weakening USD and speculation over the results of the French election. It made some good gains against the USD as the week progressed buoyed by poor USD data. EUR data throughout the week was light, but ended well on Friday with PMI’s generally coming in at or better than forecast. The EUR would have potentially gained over the GBP too, had Theresa May not announced a snap election early on. However the results of the French Election have erased the losses made off the back of the UK’s election announcement. As most expected, Macron and Le Pen emerged as the front-runners and now progress to the final round. With the majority of polls predicting this result it has helped place a bit more belief in the ability of opinion polls to predict a result. After Brexit and Donald Trump’s recent victories these polls accuracy has been called into question. Since then though we have had the Dutch election post as expected, now with the French election also doing so, it has restored confidence in these surveys. With all the second round polls showing Macron to beat Le Pen by quite a large margin the chances of a disruptive Le Pen victory have been hugely reduced, and the EUR is strengthening from this. The week ahead is quite Data heavy for the EUR and Includes an ECB rate decision (12:45 Thursday).

Last week was not a good week for the USD. Poor data continued to be posted for the USD knocking from its perch and furthering the USD decline. Not only was the USD under a lot of downward pressure from fundamental data but the flight to safe havens was furthered by European election uncertainty and the U.S.A , North Korea, engaging in a very public war of words. The threats between the two countries have continued, the most recent coming from North Korea where they are suggesting they will destroy the U.S naval response that has been sent their way as a show of their military capacity. Moving away from the countries disagreements other news from the USA came from President Trump stating that details of Tax reform plans will be made this Wednesday. The market’s reaction has been slight as the boy who cried wolf comes to mind. Too many times has the promise of details surrounding Tax reform and infrastructure spending come and gone with little data provided. Of course if the markets are wrong and a clear, logical plan is presented the potential for the USD to strengthen is certainly present.

The data calendar for the Euro € this week includes: Monday (09:00) German IFO Business Climate, Current Assessment & IFO Expectations. (13:00) German Bundesbank Monthly Report. Tuesday (07:45) French Business Climate. Wednesday (07:45) French Consumer Confidence. Thursday (07:00) German GFK Consumer Confidence Survey (11:00) Eurozone Consumer & Industrial Confidence (12:45) European Central Bank (ECB) Interest Rate Decision. (13:00) German Consumer Price Index Inflation (CPI). (13:30) ECB Monetary Policy Statement. Friday (07:00) German Retail Sales. (08:00) Spanish Flash GDP. (07:45) French CPI. (10:00) Eurozone Consumer Price Index (CPI) Inflation.

The data calendar for the USD $ this week includes: Monday (13:30) Chicago Fed National Activity Index. (16:30) FOMC member Neel Kashkari speech. Tuesday: (15:00) US CB Consumer Confidence & New Home Sales. Thursday (13:30) Core Durable and Durable Goods Orders. (13:30) US Initial Jobless Claims. Friday (13:30) US Gross Domestic Product & Personal Consumption Expenditures.

Have a great week.