Global Gloom and Doom

“Risk on” sentiment received a boost yesterday as dire US macro data dispelled fears that the US Fed would rush to dismantle its massive stimulus measures in the near term, leading both the Pound and the Euro to breach the crucial 1.52 and 1.30 marks against the greenback respectively. Meanwhile, the situation in Europe continues to degrade, as German monthly retail sales surprisingly declined for April. With the Euro zone jobless data later today expected to be weak, the upside for the single currency looks limited in today’s session. At home, optimism following upbeat Gfk consumer confidence data overnight seems tempered by weak mortgage approvals data released this morning.

Pound Sterling – UK Markets

Downbeat economic data from the US and improving prospects for the UK economy helped Sterling to briefly breach the 1.52 mark against the US Dollar in yesterday’s trading session. Softer US GDP and jobless claims data released yesterday prompted traders to increase their bets for an extended QE programme by the Fed. Additionally the GfK report released overnight revealed that consumer confidence in the UK reached the strongest level since November 2012. The British Chambers of Commerce also echoed a similar view, as it raised its 2013 growth outlook to 0.9% from 0.6% estimated earlier, adding to hopes that a tentative recovery is underway. However data just out has revealed that mortgage approvals in the UK were lower than expected for April, in contrast to the recent BBA report. With a rather lacklustre week nearing an end, markets participants keenly await next week’s macro releases in the UK to ascertain whether the growth momentum remains intact. Manufacturing and services PMI as well as the BoE policy meeting scheduled next week are likely to have a profound influence on the near term dynamics of Sterling.

US Dollar – US Markets

With the revised GDP figures coming below preliminary estimates and jobless claims unexpectedly rising last week, the US Dollar slipped against the single currency and the Pound in yesterday’ trading session, as data watered down speculation that the Fed would alter its pace of asset purchases sooner than anticipated. The GDP report revealed that the US economy expanded 2.4% for the first quarter of 2013, slightly slower than the 2.5% growth originally estimated. Moreover, jobless claims data indicated that the number of Americans filing for jobless benefits unexpectedly rose last week. With this month’s jobless claims reports offering little clarity on the US job market recovery, non farm payrolls data due next week is keenly awaited to reveal a clearer picture about the labour market outlook. In today’s session, personal income and spending data along with the final reading of Reuters/ Michigan consumer sentiment index are closely watched to ascertain whether the recent improvement in the US economy is reflected in the broader consumer base. Also, today’s Chicago manufacturing index data will garner market attention ahead of the all important ISM manufacturing activity data due next week.

Euro – European Markets

The single currency successfully breached the 1.30 mark against the US Dollar in yesterday’s trading session, as dismal US economic data eased speculation of a premature withdrawal of QE3. However, gains in the Euro remain capped this morning after data released earlier today revealed that monthly German retail sales unexpectedly dropped for April. Further adding to the woes, the unemployment rate in Italy edged higher for April, casting doubts over the efficacy of the easing measures undertaken by the ECB. With the Euro zone jobless rate expected to show similar results, the Euro is unlikely to garner demand in today’s trading session. The consumer price inflation report also features on today’s calendar and although inflation is expected to edge higher for May, it still remains well below the central bank’s target rate, thereby indicating that the ECB could continue with its easing measures. Going forward, manufacturing and services PMI across Europe due next week will be keenly watched to unearth a clearer picture of the Euro zone economy. Weak macro numbers could force the ECB to move into uncharted territory to reignite the economy in the near term.

Other Currencies – Highlights

In the initial trading session today, the Japanese Yen registered losses against the majors after data indicated that consumer prices in Japan continued to decline for April, raising doubts over the Bank of Japan’s massive stimulus programme to combat deflation in the economy. However, the Japanese Yen has recovered its losses and is trading higher against its major counterparts this morning. The IMF indicated that recent depreciation of the Japanese Yen is not a concern, as long as the central bank’s policy actions are aimed to meet domestic goals and are accompanied by comprehensive fiscal and structural reforms. Meanwhile, data revealed that industrial production in Japan rose more than expected for April. The uptrend is also likely to continue for this month, as Nomura/JMMA manufacturing PMI report indicated that manufacturing activity in Japan expanded further for May. However, despite the nation showing some signs of promise on the manufacturing front, jobless rate remained unchanged for April. With little in store in terms of domestic macro news today, traders will keep an eye on developments taking place in overseas markets for further direction.