• Hope on the Horizon
  • Theresa May on the defensive
  • Conditions not improving?
  • Ramifications

No surprises from US data today, with personal spending and PCE inflation figures coming largely within analyst expectations. Both readings also took the previous month’s reports higher. PCE, the Fed’s preferred inflation measure, was revised up to 1.9% year-on-year, and personal spending also ticked higher to 0.5% – positive signals for those looking for confirmation of fading weakness in data from the first quarter, and vis-à-vis a more aggressive policy front from the Federal Reserve. The pickup in spending is in itself a positive signal for USD bulls, indicating that consumers are more eager to spend as Q2 picks up. Incomes doubled from readings a month prior, up 0.4% from 0.2% in March. Friday’s jobs report is expected to confirm a robust labor market, but we will also be watching manufacturing figures on Thursday.

With the snap elections looming over the UK’s political landscape, there is increasingly intense focus on Theresa May and the conservative lead. Polls over the last week have shown that the conservative Tory’s lead has eroded into the single digits. In an environment where Prime Minister May has been selling a steadfast brand of sticking to her guns, it is especially detrimental to see her pull a U-turn on social care. Pale after the first sign of trouble, we have seen sterling slide after reports of May’s fall from grace. As polls continue to reveal a weaker stance for her party, we expect to see this pressure realized in currencies as well. An interview on Sky News Monday had some aggressive questions for the Prime Minister as Jeremy Paxman posed the following to Theresa May: “You have backed down over social care, and over national insurance. If I was in Brussels, I would think you are a blowhard who collapses at the first sign of gunfire.”

Those hoping for a U-turn in the European Central Bank’s policy were once again disappointed. Speaking to lawmakers yesterday, ECB President Mario Draghi defended the bank’s expansive monetary stimulus programme. Draghi maintained that the Eurozone still needs support from monetary policy as growth may be improving, inflation remains subdued. Draghi cited weak wage growth and underlying inflation measures, and the need for “accommodative financing conditions” to strengthen domestic price pressures. After a slight dip in the euro, it seems that investors are still eager to ‘buy the rumor, sell the fact’ hoping for a higher value euro.

Last week’s comments from the NATO summit are resurfacing with our allies in Germany. President Trump openly criticized NATO allies for their financial contribution (or lack thereof) in a speech last week, comments that have not gone unnoticed. German Chancellor Angela Merkel’s comments that the US was an unreliable trading partner under Trump elicited a strong reaction from President Trump. Following the Chancellor’s highly publicized speech at a campaign event, Trump tweeted that the US has “a massive trade deficit with Germany,” and citing their understated contribution to NATO, the President warned that “this will change.”

EURUSD: Stronger US data in April and Draghi talking down the euro did not resonate in currency markets, and the euro erased overnight losses and is sitting flat against the USD.

GBPUSD: After a long weekend in both domestic markets, sterling recovered losses to trade slightly higher against the greenback.

AUDUSD: Aussie dollar stronger after building permits rose more than expected on Monday.

USDCAD: A dip in oil prices putting a bit of pressure on CAD, which is sitting slightly lower against the USD.

USDJPY: A risk-off mood driving a stronger yen, leaving USDJPY at the 111 handle.