Market News & Insights
11 June 2018

Major Week for All Majors

We saw old friends become foes over the weekend at the G7 meeting in Quebec. At the epicenter of the event was Trump where he was quick to let his discontent be known across twitter. Trump did his utmost to undermine the bloc, while also launching a personal attack on Canadian Prime Minister, Justin Trudeau. While markets weren’t expecting much progression to be made going into the meeting, the deeper division and lack of progress confirmed a G6 + 1 scenario. The next major political event is the Trump-Kim meeting in Singapore tomorrow, with denuclearization expected to be top of the agenda. One gets the feeling Trump may be more concerned about cementing his noble peace prize, so I expect a few more smiles and handshakes from this event.

In currency markets, where this week’s data should not be understated. The 3 major central banks will dominate news this week, with their outlook potentially setting the tone for the future direction of their currency. First up on Wednesday is the Fed where they are expected to hike rates for a second time this year, which would take rates above the inflation figure for the first time since 2005. With a rate hike all but priced in, it will be Chairman Powell and his colleague’s future projections which interests investors and help highlight where the Fed see this tightening path go, any signs of four hikes would be bullish for the dollar. The ECB are next up on Thursday, where last week’s comments from Chief Economist, Peter Praet, who called the meeting pivotal for QE, heightened what markets thought would be a non-event. The Bank of Japan meets on Friday too but is likely to end the week exactly where it started with no tightening of monetary policy on the agenda. The BOJ is still buying vast quantities of Japanese government bonds and will have been encouraged to keep doing so by data showing its still far off its 2 percent inflation target and that the economy shrank in the first quarter.

While the BOE have no scheduled meeting, it’s the impacts from the events elsewhere that may force their hand. Theresa May takes her flagship Brexit legislation to the House of Commons where she will hope to see off any revolt by pro-remain MPs. Former PM, Gordon Brown, said a loss on the key vote could force May out. Irish Bookmaker, Paddy Power, currently have prices as low as 3/1 for May to step down in Q2 of this year.

Plenty of other data out to whet the appetite, where earlier this morning we saw UK factory output show its biggest fall in over 5 years. Tomorrow sees the US release its monthly inflation report which will be a key gauge of how the economy is holding up under the Fed’s tighten policy. We also have average earnings and unemployment figures form the UK on the same day with inflation data out then on Wednesday.

EURUSD continues to trade above 1.18, with a close above 1.1830 opening the door for a move back towards 1.20. Sterling is on the back foot after that release earlier, dropping back below 1.34 against the dollar and dropping a 40bps against the euro to 1.1330.