Duncan Donald

Mon, Apr 29

KYLIN TALK | Weekly Markets Update 29.04.2019

In the UK the pound had a heavy week hitting new lows of 1.2865 as Parliament returned to office. It seems that no clear or relevant strategy is in place, as rumours that Prime Minister Theresa May has decided bringing a 4th meaningful vote, fearing that it would again fail, and the impact of the continued embarrassment would only encourage the calls for her resignation. It is this political disharmony that has proved to be the downward pressure on the UK. Theresa May seems resigned to the fact the UK will be forced to participate in the upcoming European elections.

It is not just the leading party that hit the headlines this week, the Labor party has its own internal conflicts as party members are keen to back a policy for inclusion of a draft that would permit a further Brexit referendum as part of the European election campaign strategy, which Jeremy Corbyn is keen to avoid.  In Scotland, First Minister Nicola Sturgeon’s Scottish Nationalist Party (SNP) announced that Scotland would be preparing for a further independence vote. Naturally, believing the consensus would be more supportive following the turmoil over a Brexit that Scotland resolutely voted against. As always Westminster was dismissive of the SNP’s call which had more than a hint of irony bearing in mind the current Brexit plight.

In US we are still seeing renewed strength in both the stock markets and the US Dollar.  As trade negotiations with China showed further progression last week. Fridays release of GDP followed the recent trend of positivity, coming in well above the 2.2% forecast with it printing 3.2%.  The only minor detractor from this positivity is that inflation is not matching the economic strength of the US with the PCE data coming in at just 1.3% versus the 1.8% seen last month. However, the renewed strength in the US with the backdrop of lessening concerns in a trade related global growth slowdown could give Jerome Powell’s Federal Reserve Open Market Committee (FOMC) more to think about at this weeks FOMC rate setting meeting. Whilst in the space of 6 months we have gone from the FOMC calling for further US interest rate hikes, followed by an absolute flip to looking at the potential of cuts. But, it in light of the recent data naturally we would expect a reflective pause from them or words to that effect from this weeks meeting.  Of course, Donald Trump didn’t miss the opportunity to use Friday’s beat in the GDP number to champion the “success” of his tenure as President.

In the Eurozone despite stronger than last month’s Flash Purchasing Managers Index (PMI) data out of Italy and France, certainly in Germany it was inconceivable that the number could be as bad, leading to little markets rally. The pressures of the poor data from Germany is weighing on the single currency unaided by the Brexit deadlock and the lack of stimulus options available to the ECB. The result of a left-wing victory in Spain as the week starts bore little impact on the Euro but potential for more devolutionary discussions could bear weight should they progress. This week brings Eurozone May Day Bank Holiday with further manufacturing data from Italy, France and most importantly Germany where again the market will be looking for signs of resilience.

Monday – The session will begin by absorbing the results of the Spanish election. At the European open we have German Retail Sales and Import Prices as well as M3 Money Supply and Private Loans our of the Eurozone. In the afternoon in the States we get Core PCE Price Index as well as Personal Spending and Income data.

Tuesday – Chinese Manufacturing and Non-manufacturing PMI data where the market is looking for further positive prints out of the country. Business confidence data from New Zealand is next up. As Europe opens, we have a host of data from the bloc, with the highlights being Spanish GDP, German Preliminary CPI and Eurozone flash GDP. In the US session, Canadian GDP is first up followed by US Consumer confidence and Chicago PMI. At the US close APAC open we get Employment and Unemployment data.

Wednesday – Holidays across Europe leaves key data coming from just the UK and US. In the UK Manufacturing PMI and Net Lending figures come at 09.30 GMT. In the US session we have ISM Manufacturing PMI at 3.00. In the evening at 19.00 GMT we have the all-important FOMC rate decision where no change is expected, with the press conference afterwards at 19.30 where we will get a glimpse of the committee members thoughts.

Thursday – As the European session opens, we get PMI data from Spain, Italy, France and Final German Manufacturing PMI. At midday UK time we get the latest Interest rate decision from the UK MPC which again reflect a pause induced by the Brexit status. BoE Chief Mark Carney delivers his statement just after at 12.30.

Friday – Australian Building Approvals come early in the APAC session. From the UK we get services PMI at 9.30. At 10.00 GMT there is Eurozone Flash CPI and Core CPI. In the US session we get the all-important Employment data. With headline payrolls forecast at 181k versus the 196k seen last month. It is also forecast that we see Average Earnings bounce back to 0.3% after a fall to 0.1% last month.