Market News & Insights
2 May 2018

Fundamentals Now Fundamental

Yesterday the US Dollar continued its recent surge despite some political risks emanating out of Washington over a potential subpoena for President Trump in the ongoing special counsel investigation. From a market perspective, the focus turns today to the end of the US Federal Reserve’s FOMC meeting at 7pm this evening. As is the case with central bank monetary policy meetings, investors will watch closely for any signals on any future monetary policy decisions with markets currently expecting policy makers to raise interest rates another three times this year with the next one expected in June. Prior to this we have ADP Employment figures which as we have mentioned on numerous occasions here, is more a precursor to the bigger event of Friday’s Non-Farms Payroll which at least provides the market with some directional information as opposed to solely looking at the statistically unreliable absolute headline number. The US Dollar Index, which tracks the greenback versus a basket of 6 major currencies, after reaching fresh multi month highs yesterday appears to be on pause for now ahead of these key events.

European markets return today with a flurry of Manufacturing PMI readings scheduled for this morning. German, French and Italian readings are all expected to remain as they were, with the overall Eurozone figure expected to follow suit. Later on in the morning we have the latest preliminary Q1 GDP number which is expected to show a slowdown from 0.6% in Q4 to 0.4%. Any further drop offs here would be of concern to the ECB after their long battle with deflation and growth, something markets thought was all but a distant memory. Draghi hasn’t been as smug about the Eurozone of late, so perhaps there is an underlying concern here, we’ll need to monitor these figures closely to gauge if we’re in a position to withdraw QE as early as this year.

The pound collapsed against the strong dollar yesterday, assisted by a weak Manufacturing PMI number. This saw it drop off 1.35 percent against the greenback, whilst against the euro it was down 0.5 percent. With the May hike now off the table and with fundamental data beginning to drop off, the pound is coming under some unwanted attention. This lead Santander SA to revise forecast for 1.32 for cable by the end of the year – a level not seen since November 2017.