The dollar is little changed against the euro and sterling from where it was this time yesterday morning, having attempted to retrace its post-Fed meeting dip in the intervening period, trading at around $1.0730 and $1.2540 ahead of the key US employment (payrolls) report later today. The euro-sterling cross remains tightly rangebound trading at about 85.5p.
Yesterday’s Events
In government bond market, US 2- and 10-year yields both rose by around 6bps as rate cut expectations US bond yields have fallen further as rate cut expectations firm a bit more following the Fed meeting – the market is now fully pricing in a quarter-point reduction in November – with both 2- and 10-year yields 5-6bps lower at the close, while equivalent German and UK yields have also been tracking lower. Meanwhile, US equities had a solid session, gaining almost 1%, with better than expected results from Apple after the close likely to add to the positive sentiment today.
ECB’s Stournaras – one of the most dovish members – says “we now consider three (interest) rate cuts in 2024 as the more likely scenario,” noting that Euro area first-quarter GDP data – which showed the economy grew more strongly than expected (+0.3% q-o-q) in the first three months of the year – were a welcome surprise.
The Day Ahead
The key economic data release today is the April employment report in the US. Following a 300k+ gain in payrolls in March the consensus expects the economy to have added a solid 240k jobs in April, with the unemployment rate seen holding at 3.8% and the year-on-year growth in hourly earnings forecast to ease to for a third consecutive month to 4%.
Other data due today include the ISM index of services activity for April in the US – its manufacturing counterpart came in weaker than expected according to the latest release published earlier this week – and a final PMI services reading for April in the UK.
Author: Ellen Moloney
Tel: 1800 30 30 03 / +353 (0)1 790 0000
2 May 2024
Today's Talking Points 02.05.24
Market Commentary
The Fed left interest rates unchanged yesterday and said monetary policy needs to remain restrictive for as long as necessary to return inflation to target, though Powell said the next move in rates is likely to be a cut. The dollar had given up some ground ahead of the meeting following softer than expected US economic data and has weakened a bit further post the meeting, trading at around $1.0720 and $1.2530 vis-a-vis the euro and sterling respectively this morning, with EURGBP little changed in and around £0.8550.
Yesterday’s Events
US bond yields have drifted lower following the Fed meeting to leave 2- and 10-year yields both down around 10bps from Tuesday’s close, with the market now pricing in about a 90% chance of a first rate cut in November. Meanwhile, US equity markets gave up some initial gains leaving the S&P 500 slightly lower on the day.
In its post-meeting statement the Fed noted that inflation has eased over the past year but there has been “a lack of further progress” to the 2% target in recent months, and reiterated its policy position that it will not be appropriate to cut interest rates until it has gained greater confidence that inflation is moving sustainably towards target. The Fed also announced that it will slow the pace at which it is reducing the size of its balance sheet (QT) from June.
Yesterday saw the release of some softer than forecast economic data out of the US. The ISM index of manufacturing activity fell back into contractionary territory in the month of April amid a notable decline in new orders, while in the labour market, the number of job openings fell by almost 4% in March.
The Day Ahead
Economic data due today includes jobless claims, factory orders and productivity/unit labour costs in the US, while the OECD has just published its latest Economic Outlook.
Author: Ellen Moloney
Tel: 1800 30 30 03 / +353 (0)1 790 0000
1 May 2024
Today's Talking Points 01.05.24
Market Commentary
Markets have taken their cue from stronger than expected wage growth data in the US, pushing the dollar and bond yields higher and equities lower ahead of the Fed’s latest monetary policy announcement later this evening. The dollar has strengthened to around $1.0650 and $1.2470 vis-à-vis the euro and sterling respectively, leaving EURGBP little changed trading just below £0.8550.
Yesterday’s Events
In government bond market, US 2- and 10-year yields both rose by around 6bps as rate cut expectations were dampened further post the latest economic data, while equivalent German and UK yields increased by something similar. Equity markets, meanwhile, had a tough enough time of it, with US and European stocks closing out the last day of April with losses of 1.6% and 1.2% respectively.
The latest employment cost index in the US, which the Fed watches closely, rose by more than forecast in the first quarter of this year, increasing by 1.2% q-o-q after a gain of 0.9% in Q4 last year. This halted the recent gradual deceleration in the year-on-year pace of increase, which was unchanged at 4.2%.
The Euro area economy recovered more strongly than expected in Q1, with GDP increasing by 0.3% q-o-q after falling by 0.1% in the final quarter of 2023. Core inflation also came in a touch firmer than forecast at 2.7% in April, albeit still down from 2.9% in March, while headline inflation was unchanged at 2.4%. The data leaves the ECB on track to cut interest rates in June, though the market has pared back the scale of expected easing this year (to around 65bps).
House prices in the UK fell for a second consecutive month in April according to the Nationwide measure. They were down 0.4% on the month, after dipping by 0.2% in March, with the annual increase declining to 0.6% from 1.6%.
The Day Ahead
The focus today is very much on the latest Fed meeting with markets awaiting the monetary policy statement and Powell’s remarks at the post-meeting press conference. A couple of weeks ago, Powell said “the recent data have clearly not given us greater confidence (that inflation is returning sustainably to 2%) and instead indicate that it’s likely to take longer than expected to achieve that confidence (hence) it’s appropriate to allow restrictive (monetary) policy further time to work”. This is likely to be the essence of the message he delivers today too.
On the economic data front meanwhile, key releases today include the ISM manufacturing index, job openings and ADP employment report in the US.
Author: Ellen Moloney
Tel: 1800 30 30 03 / +353 (0)1 790 0000
Today's Talking Points 30.04.24
Market Commentary
The euro is marginally lower ahead of Euro area inflation (April) and GDP (Q1) data due later this morning, trading at about $1.07 against the dollar and at 85.3p against sterling. The pound is also a touch weaker against the US currency trading at around $1.2530. The yen, meanwhile remains higher against the dollar just below Y157, after bouncing strongly off its lows of over Y160 amid speculation the Japanese authorities intervened to support the currency.
Yesterday’s Events
Government bond yields have retreated further from their highs of late last week, with US and German 10-year yields falling by around 5bps yesterday and equivalent UK yields by just a little less. In equity markets, US indices ended with modest gains, after a strong performance on Friday, but European stocks closed marginally lower on the day.
ECB Vice-President de Guindos indicates that the central bank is likely to cut interest rates in June but reiterates that “we are not pre-committing to a particular rate path”, while also warning that “the outlook for inflation is surrounded by substantial risks (with) the geopolitical situation, especially in the Middle East, posing a particular upside risk”.
Ahead of this morning’s April inflation data for the Euro area, the available national data shows the annual rate of headline HICP inflation in Germany and Spain nudged up in April according to the “flash” readings, but was unchanged in France and nudged down in Ireland (to 1.6%, its lowest since June 2021).
The Day Ahead
Headline inflation in the Euro area is expected to have remained at 2.4% last month according to the consensus forecast, but the core rate is seen falling for an eight consecutive month to 2.6% (from 2.9% in March). Separately, the Euro area economy is forecast to have returned to growth in the first quarter of this year, with GDP expected to have increased by 0.1% (q-o-q) having contracted by 0.1% in the final quarter of last year. Overall, today’s data should reinforce market expectations that the ECB will lower interest rates in June.
Author: Ellen Moloney
Tel: 1800 30 30 03 / +353 (0)1 790 0000
29 Apr 2024
Today's Talking Points 29.04.24
Market Commentary
The dollar, which lost ground to the euro over the course of last week, took back some of that in trading on Friday. The dollar rebounded after US PCE data showed that US inflation remains stubbornly elevated and makes it more likely the Fed keeps interest rates ‘higher for longer’. The euro was trading just below $1.07 at close of play on Friday, having touched off as high as $1.0750 in earlier trading, opening this morning at $1.0720 while GBPUSD trades at $1.2530. Sterling has gained a little on the euro in the past few days and starts off this week at 85.6p.
The yen weakened last week, with the Bank of Japan failing to announce any currency market intervention and keeping monetary policy on hold. The Japanese currency very briefly broke through a key level of Y160 to the dollar overnight, a 34-year low, but rebounded strongly to Y155 now prompting some market speculation that authorities may be stepping in though there is no confirmation or denial from the Japanese Ministry of Finance or Bank of Japan.
Yesterday’s Events
Government bond yields ticked upward for the most part last week, but on Friday we saw some reversal. US 10-year yields fell 4bps to 4.67% (but up from 4.6% at the start of last week) while German 10-year yields were down 5bps to 2.57% (from 2.5%) and UK 10-year yields down 4bps to 4.32% (from 4.2%). Yields are dipping lower on the open this morning.
US core PCE deflator rose by 0.3% in March from February, leaving the annual rate at 2.8%, unchanged from February but a touch ahead of estimates. Core PCE is the Fed’s ‘preferred’ measure of inflation and its stubbornness to recede further last month will reinforce views that the Fed needs to hold off on any rate cuts in the near term. Combined with a solid labour market, this data paints a picture for the Fed of households holding up in the face of sustained higher interest rates, but that inflation is a bit more persistent than hoped for. The Fed is virtually certain to keep rates on hold at their meeting this week and the market is now pushing out a first rate cut into the final months of this year.
For the ECB, the inflation data on Friday supported the case for beginning easing sooner rather than later. Consumer inflation expectations edged down again in March according to the Bank’s own data. Prices are seen increasing by 3% over the next year, down from 3.1% in February and from a high of 5.8% in October of 2022. The ECB will get further inflation data this week with the flash HICP for the euro area due. The June meeting remains key, when the Bank will have more data on inflation and wage developments but with each data release, so far, the arguments for a rate cut in June appear to get stronger.
The Day Ahead
It’s fairly quiet on the economic data front today with the CBI report due in the UK and consumer confidence in the Euro area. Looking to the week ahead, we have the GDP growth rate and Inflation data in the Euro Area on Tuesday as well as the unemployment rate on Friday. In the US, the Fed has its interest rate decision on Wednesday evening and non-farm payrolls will be out on Friday afternoon.
Author: Ellen Moloney
Tel: 1800 30 30 03 / +353 (0)1 790 0000
26 Apr 2024
Today's Talking Points 26.04.24
Market Commentary
The dollar lost more ground yesterday following weaker than expected Q1 US GDP data, continuing a trend of weak US data this week. The dollar fell to around $1.0730 to the euro, and has now lost more than 1/2 cent this week against the single currency, and to $1.25 to sterling, down more than 1 cent from Monday’s trading. The euro has also conceded a little room to sterling and kicks off this morning at 85.8p from over 86p earlier this week. The yen weakened to a fresh multi decade low of Y156.5 to the dollar following a Bank of Japan meeting where policy was kept on hold and no currency market intervention was announced.
Yesterday’s Events
The weaker US GDP data also weighed on equities where the S&P 500 had seen gains early in the week, due to some solid quarterly corporates earning reports, but lost 0.5% yesterday.
Government bond yields continued to tick upwards, US 10-year yields were up another 5bps to nearly 4.7% (+10bps from Monday’s trading) while German 10-year yields were up 4bps to 2.63% and UK bonds 3bps to 4.36%.
US growth slowed to a two-year low of 1.6% (annualised) quarter-on-quarter in Q1. This is less than half the pace of the 3.4% expansion in Q4 and lower than the expected 2.5% increase. However, underlying demand is stronger than the headline figure suggests. Personal spending held up reasonably well, up 2.5%, while investment rose 3.2%, helped by robust increase in residential investment as business investment growth was modest.
ECB member Panetta was out with very dovish comments. He warned that the ECB needed to ease monetary policy soon. He said that ‘unnecessary delays’ in cutting rates increases the risk of undershooting the 2% inflation target in the future and correcting that would require a return to ultra-low rates. He also said that delays by the Fed in starting their easing cycle should be no obstacle to the ECB starting to cut.
In Japan, the Bank of Japan left policy unchanged and did not- for now – announce any currency market intervention. Governor Ueda played down the Yen impact on inflation but did leave open the possibility of market intervention in the future.
The Day Ahead
On the agenda today we have inflation expectations in the Euro Area and US personal income and spending and PCE inflation.
Dealer Comments
Today's Talking Points 03.05.24
Market Commentary
The dollar is little changed against the euro and sterling from where it was this time yesterday morning, having attempted to retrace its post-Fed meeting dip in the intervening period, trading at around $1.0730 and $1.2540 ahead of the key US employment (payrolls) report later today. The euro-sterling cross remains tightly rangebound trading at about 85.5p.
Yesterday’s Events
In government bond market, US 2- and 10-year yields both rose by around 6bps as rate cut expectations US bond yields have fallen further as rate cut expectations firm a bit more following the Fed meeting – the market is now fully pricing in a quarter-point reduction in November – with both 2- and 10-year yields 5-6bps lower at the close, while equivalent German and UK yields have also been tracking lower. Meanwhile, US equities had a solid session, gaining almost 1%, with better than expected results from Apple after the close likely to add to the positive sentiment today.
ECB’s Stournaras – one of the most dovish members – says “we now consider three (interest) rate cuts in 2024 as the more likely scenario,” noting that Euro area first-quarter GDP data – which showed the economy grew more strongly than expected (+0.3% q-o-q) in the first three months of the year – were a welcome surprise.
The Day Ahead
The key economic data release today is the April employment report in the US. Following a 300k+ gain in payrolls in March the consensus expects the economy to have added a solid 240k jobs in April, with the unemployment rate seen holding at 3.8% and the year-on-year growth in hourly earnings forecast to ease to for a third consecutive month to 4%.
Other data due today include the ISM index of services activity for April in the US – its manufacturing counterpart came in weaker than expected according to the latest release published earlier this week – and a final PMI services reading for April in the UK.
2 May 2024
Today's Talking Points 02.05.24
Market Commentary
The Fed left interest rates unchanged yesterday and said monetary policy needs to remain restrictive for as long as necessary to return inflation to target, though Powell said the next move in rates is likely to be a cut. The dollar had given up some ground ahead of the meeting following softer than expected US economic data and has weakened a bit further post the meeting, trading at around $1.0720 and $1.2530 vis-a-vis the euro and sterling respectively this morning, with EURGBP little changed in and around £0.8550.
Yesterday’s Events
US bond yields have drifted lower following the Fed meeting to leave 2- and 10-year yields both down around 10bps from Tuesday’s close, with the market now pricing in about a 90% chance of a first rate cut in November. Meanwhile, US equity markets gave up some initial gains leaving the S&P 500 slightly lower on the day.
In its post-meeting statement the Fed noted that inflation has eased over the past year but there has been “a lack of further progress” to the 2% target in recent months, and reiterated its policy position that it will not be appropriate to cut interest rates until it has gained greater confidence that inflation is moving sustainably towards target. The Fed also announced that it will slow the pace at which it is reducing the size of its balance sheet (QT) from June.
Yesterday saw the release of some softer than forecast economic data out of the US. The ISM index of manufacturing activity fell back into contractionary territory in the month of April amid a notable decline in new orders, while in the labour market, the number of job openings fell by almost 4% in March.
The Day Ahead
Economic data due today includes jobless claims, factory orders and productivity/unit labour costs in the US, while the OECD has just published its latest Economic Outlook.
1 May 2024
Today's Talking Points 01.05.24
Market Commentary
Markets have taken their cue from stronger than expected wage growth data in the US, pushing the dollar and bond yields higher and equities lower ahead of the Fed’s latest monetary policy announcement later this evening. The dollar has strengthened to around $1.0650 and $1.2470 vis-à-vis the euro and sterling respectively, leaving EURGBP little changed trading just below £0.8550.
Yesterday’s Events
In government bond market, US 2- and 10-year yields both rose by around 6bps as rate cut expectations were dampened further post the latest economic data, while equivalent German and UK yields increased by something similar. Equity markets, meanwhile, had a tough enough time of it, with US and European stocks closing out the last day of April with losses of 1.6% and 1.2% respectively.
The latest employment cost index in the US, which the Fed watches closely, rose by more than forecast in the first quarter of this year, increasing by 1.2% q-o-q after a gain of 0.9% in Q4 last year. This halted the recent gradual deceleration in the year-on-year pace of increase, which was unchanged at 4.2%.
The Euro area economy recovered more strongly than expected in Q1, with GDP increasing by 0.3% q-o-q after falling by 0.1% in the final quarter of 2023. Core inflation also came in a touch firmer than forecast at 2.7% in April, albeit still down from 2.9% in March, while headline inflation was unchanged at 2.4%. The data leaves the ECB on track to cut interest rates in June, though the market has pared back the scale of expected easing this year (to around 65bps).
House prices in the UK fell for a second consecutive month in April according to the Nationwide measure. They were down 0.4% on the month, after dipping by 0.2% in March, with the annual increase declining to 0.6% from 1.6%.
The Day Ahead
The focus today is very much on the latest Fed meeting with markets awaiting the monetary policy statement and Powell’s remarks at the post-meeting press conference. A couple of weeks ago, Powell said “the recent data have clearly not given us greater confidence (that inflation is returning sustainably to 2%) and instead indicate that it’s likely to take longer than expected to achieve that confidence (hence) it’s appropriate to allow restrictive (monetary) policy further time to work”. This is likely to be the essence of the message he delivers today too.
On the economic data front meanwhile, key releases today include the ISM manufacturing index, job openings and ADP employment report in the US.
Today's Talking Points 30.04.24
Market Commentary
The euro is marginally lower ahead of Euro area inflation (April) and GDP (Q1) data due later this morning, trading at about $1.07 against the dollar and at 85.3p against sterling. The pound is also a touch weaker against the US currency trading at around $1.2530. The yen, meanwhile remains higher against the dollar just below Y157, after bouncing strongly off its lows of over Y160 amid speculation the Japanese authorities intervened to support the currency.
Yesterday’s Events
Government bond yields have retreated further from their highs of late last week, with US and German 10-year yields falling by around 5bps yesterday and equivalent UK yields by just a little less. In equity markets, US indices ended with modest gains, after a strong performance on Friday, but European stocks closed marginally lower on the day.
ECB Vice-President de Guindos indicates that the central bank is likely to cut interest rates in June but reiterates that “we are not pre-committing to a particular rate path”, while also warning that “the outlook for inflation is surrounded by substantial risks (with) the geopolitical situation, especially in the Middle East, posing a particular upside risk”.
Ahead of this morning’s April inflation data for the Euro area, the available national data shows the annual rate of headline HICP inflation in Germany and Spain nudged up in April according to the “flash” readings, but was unchanged in France and nudged down in Ireland (to 1.6%, its lowest since June 2021).
The Day Ahead
Headline inflation in the Euro area is expected to have remained at 2.4% last month according to the consensus forecast, but the core rate is seen falling for an eight consecutive month to 2.6% (from 2.9% in March). Separately, the Euro area economy is forecast to have returned to growth in the first quarter of this year, with GDP expected to have increased by 0.1% (q-o-q) having contracted by 0.1% in the final quarter of last year. Overall, today’s data should reinforce market expectations that the ECB will lower interest rates in June.
29 Apr 2024
Today's Talking Points 29.04.24
Market Commentary
The dollar, which lost ground to the euro over the course of last week, took back some of that in trading on Friday. The dollar rebounded after US PCE data showed that US inflation remains stubbornly elevated and makes it more likely the Fed keeps interest rates ‘higher for longer’. The euro was trading just below $1.07 at close of play on Friday, having touched off as high as $1.0750 in earlier trading, opening this morning at $1.0720 while GBPUSD trades at $1.2530. Sterling has gained a little on the euro in the past few days and starts off this week at 85.6p.
The yen weakened last week, with the Bank of Japan failing to announce any currency market intervention and keeping monetary policy on hold. The Japanese currency very briefly broke through a key level of Y160 to the dollar overnight, a 34-year low, but rebounded strongly to Y155 now prompting some market speculation that authorities may be stepping in though there is no confirmation or denial from the Japanese Ministry of Finance or Bank of Japan.
Yesterday’s Events
Government bond yields ticked upward for the most part last week, but on Friday we saw some reversal. US 10-year yields fell 4bps to 4.67% (but up from 4.6% at the start of last week) while German 10-year yields were down 5bps to 2.57% (from 2.5%) and UK 10-year yields down 4bps to 4.32% (from 4.2%). Yields are dipping lower on the open this morning.
US core PCE deflator rose by 0.3% in March from February, leaving the annual rate at 2.8%, unchanged from February but a touch ahead of estimates. Core PCE is the Fed’s ‘preferred’ measure of inflation and its stubbornness to recede further last month will reinforce views that the Fed needs to hold off on any rate cuts in the near term. Combined with a solid labour market, this data paints a picture for the Fed of households holding up in the face of sustained higher interest rates, but that inflation is a bit more persistent than hoped for. The Fed is virtually certain to keep rates on hold at their meeting this week and the market is now pushing out a first rate cut into the final months of this year.
For the ECB, the inflation data on Friday supported the case for beginning easing sooner rather than later. Consumer inflation expectations edged down again in March according to the Bank’s own data. Prices are seen increasing by 3% over the next year, down from 3.1% in February and from a high of 5.8% in October of 2022. The ECB will get further inflation data this week with the flash HICP for the euro area due. The June meeting remains key, when the Bank will have more data on inflation and wage developments but with each data release, so far, the arguments for a rate cut in June appear to get stronger.
The Day Ahead
It’s fairly quiet on the economic data front today with the CBI report due in the UK and consumer confidence in the Euro area. Looking to the week ahead, we have the GDP growth rate and Inflation data in the Euro Area on Tuesday as well as the unemployment rate on Friday. In the US, the Fed has its interest rate decision on Wednesday evening and non-farm payrolls will be out on Friday afternoon.
26 Apr 2024
Today's Talking Points 26.04.24
Market Commentary
The dollar lost more ground yesterday following weaker than expected Q1 US GDP data, continuing a trend of weak US data this week. The dollar fell to around $1.0730 to the euro, and has now lost more than 1/2 cent this week against the single currency, and to $1.25 to sterling, down more than 1 cent from Monday’s trading. The euro has also conceded a little room to sterling and kicks off this morning at 85.8p from over 86p earlier this week. The yen weakened to a fresh multi decade low of Y156.5 to the dollar following a Bank of Japan meeting where policy was kept on hold and no currency market intervention was announced.
Yesterday’s Events
The weaker US GDP data also weighed on equities where the S&P 500 had seen gains early in the week, due to some solid quarterly corporates earning reports, but lost 0.5% yesterday.
Government bond yields continued to tick upwards, US 10-year yields were up another 5bps to nearly 4.7% (+10bps from Monday’s trading) while German 10-year yields were up 4bps to 2.63% and UK bonds 3bps to 4.36%.
US growth slowed to a two-year low of 1.6% (annualised) quarter-on-quarter in Q1. This is less than half the pace of the 3.4% expansion in Q4 and lower than the expected 2.5% increase. However, underlying demand is stronger than the headline figure suggests. Personal spending held up reasonably well, up 2.5%, while investment rose 3.2%, helped by robust increase in residential investment as business investment growth was modest.
ECB member Panetta was out with very dovish comments. He warned that the ECB needed to ease monetary policy soon. He said that ‘unnecessary delays’ in cutting rates increases the risk of undershooting the 2% inflation target in the future and correcting that would require a return to ultra-low rates. He also said that delays by the Fed in starting their easing cycle should be no obstacle to the ECB starting to cut.
In Japan, the Bank of Japan left policy unchanged and did not- for now – announce any currency market intervention. Governor Ueda played down the Yen impact on inflation but did leave open the possibility of market intervention in the future.
The Day Ahead
On the agenda today we have inflation expectations in the Euro Area and US personal income and spending and PCE inflation.