What’s been happening?

Pound Sterling – UK Markets 

The British Pound is once again taking its lead from UK economic data prints. Inflation data for March came in softer than markets had anticipated, which has had a negative effect on GBP. The monthly CPI data read at 0.4%, below the 0.5% forecast. More importantly for Sterling, core CPI read at 2.1%, below the 2.2% forecast by analysts. The latest data is negative for the Pound and has given a healthy gain for the Euro as well as the US Dollar. 

As well as pushing the GBP USD pair to a five-month low, the low inflation data is likely to signal a warning to the Bank of England to keep interest rates lower-for-longer. While some analysts are looking at the August MPC meeting for a 0.25% rate hike, any further falls in inflation could push these expectations back to November.

ONS Head of Inflation Mike Hardie commented on today's inflation figures: “Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.” 

US Dollar – US Markets

It was US President Donald Trump who was responsible for lower US stock index futures open this morning. Some worrisome comments were expressed by Trump yesterday regarding the North Korea/US meeting and the trade talks with China. 

Trump told reporters he wasn’t sure whether a meeting scheduled for 12th June with the North Korean leader would actually happen, amidst concerns that Kim Jong Un is resistant to giving up his nuclear weapons. The president also said yesterday he was “not satisfied” with trade talks with China despite opposing comments from the members of his own administration. If trade talks between the two superpowers continue at a slow pace, markets are likely to see an increase in tensions and the US introducing some punitive trade sanctions against China.  

Euro – European Markets

The Eurozone economic growth continued to slow down in the month of May, according to the latest manufacturing and services activity surveys by IHS Markit that were released this morning. The surveys also indicated that companies have become less optimistic about the outlook - while cost pressures increased, selling price inflation slowed. The IHS Markit Eurozone fell from 55.1 in April to 54.1 in May, according to the flash reading. By remaining above the 50 mark, the PMI continued to show steady growth of business activity in the euro area, however, the latest increase was the weakest for one and a half years. 

The surveys showed businesses being constrained by shortages of both raw materials and labour in some countries. Such constraints were also indicated by a further marked lengthening of supplier delivery times and rising backlogs of work. 

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at HIS Markit said: “Despite the headline PMI dropping to an 18-month low, the survey remains at a level consistent with the eurozone economy growing at a reasonably solid rate of just over 0.4% in the second quarter. Job creation is also continuing to run at an encouragingly robust rate and optimism about the business outlook remains above its long-run average.”  

What’s coming up? 

UK: Following today’s inflation data release, markets will be closely following the shifting GBP rate. February’s Retail sales data will be released tomorrow, with BoE’s Governor Mark Carney giving a speech on the Monetary Policy later that day.   

US: The markets will focus on the Federal Open Market Committee Minutes taking place later today. Prior to that we will see some important data released in forms of Markit Manufacturing PMI and Markit Services PMI. 

EU: The rest of the week looks a little quieter for the Eurozone, following today’s significant IHS Markit data release. ECB Monetary Policy Meeting Accounts will be taking place tomorrow morning, followed by a summary of the discussion, in an unattributed form, on the economic and monetary analyses and on the monetary policy stance.