Good afternoon,
The week ahead in GBP
I took a few days to not look at my phone this weekend in order to get my head out of the Brexit bubble. Coming back to another week of cliff-edge decisions and late-night meetings, it is easy to see why sterling looks so down in the mouth. No deal risk remains on the table with a deadline of 11pm this Friday if the UK and EU are unable to agree on an extension, Article 50 revocation or a deal. On the other hand, whilst an agreement, a long extension or the opportunity for a second referendum will be seen initially as a positive for the pound, the ongoing economic and political atmosphere are not conducive to sustainable improvement for sterling.
All eyes will likely fall on Wednesday’s European Council meeting at which an extension of as long as a year, despite some vocal opposition from some of the EU27 and Brexiteers back here in the UK.
We can see sterling trading fairly listlessly this week with Wednesday’s growth and industrial production numbers likely to both show some slowing of output. It is difficult to call sterling one way or the other at the moment but Wednesday will inject some volatility.
The week ahead in USD
Last week was an object lesson in watching the data as opposed to watching what people say about the data. This week could be the same given Wednesday’s Federal Reserve minutes likely to reinforce why the central bank thought it necessary to downgrade its language on the US economy despite some decent data of late.
Friday’s payrolls report showed an economy that is still able to create jobs at a decent rate albeit the overall tone was one of normalisation given a poor start to the year. As we noted in our webinar last week, looking forward to Q2, the chances of a recession or a significant downturn in the US looks overblow to us and the dollar still has room to run higher as well.
Wednesday’s inflation and Friday’s consumer confidence numbers may be enough to keep this feeling of cautious optimism in place.
The week ahead in EUR
There is still a lot that can go wrong for the euro in the coming months and hence why the euro cannot break out of the funk that it currently finds itself in. Obviously, there are huge potential implications for the euro from a poor Brexit outcome but trade issues around the US’s investigation into the European car market as well as issues around Italian politics can all upset the single currency.
Wednesday’s European Central Bank meeting is unlikely to shift things too much.
The week ahead in CNY
One of our causes for optimism in the coming months is the prospect of a deal between the US and China on trade. Put them together with rising sentiment as seen in both the manufacturing and services sectors and there is some optimism to be had as a result. We can but hope that inflation and trade numbers released towards the end of the week also back up these reasons for higher sentiment.
The week ahead in JPY.
We’re pretty optimistic on global growth in the second quarter that the nadir may have already been seen, that the JPY could be in for a tough couple of weeks. USDJPY could even break through the 112.00 level this week and on towards 114 in the coming week.
The week ahead in AUD and NZD
The story of Reserve Bank of Australia dovishness is set to be tested again this week with two speeches from the RBA Deputy Governor Guy Debelle on Wednesday and Thursday. The ongoing story of whether the Reserve Bank of Australia is in a position to cut interest rates anytime soon will also be fleshed out by the publication of April’s Financial Stability Review that is due this Friday. The AUD needs to be careful of the market’s response should the review show further expected pressure on the local housing market.
In NZD, we also expect the overall tone of dovishness to continue and to maintain the weakness of the kiwi dollar.
The week ahead in SGD
This week’s Monetary Authority of Singapore meeting is expected to see a tightening of monetary policy by 50bps, a decision that seems to be largely priced in. The accompanying statement will limit how much the SGD will rally we think though, especially given the concerns over global trade.
Have a great week.