Daily Market Brief – 25 April 2016

EU vote drives Sterling sentiment

Quote of the day: “You can’t build a reputation on what you are going to do”

April 25th: Highlights

  • Sterling ends week higher
  • ECB keeps rates unchanged
  • US unemployment lowest since 1973

Market Comment

The main driver of the market last week was the EU referendum, in a week that could prove to be pivotal for the EU referendum. The Treasury report pointed out the potential costs from a vote to leave and Obama outlined how new trade deals with the US would be a low priority if the UK was outside the EU. The polls reacted to the developments, showing a rise in the “Remain” vote.

BOE Governor Carney cast doubt over the forecasted economic performance for the UK after “Brexit” and added to the widely accepted idea that leaving the EU will incur an economic cost for the UK.

Sterling was also pushed higher across the board last week.

Behind the headline rhetoric, domestic economic data was disappointing. Unemployment pushing up (+6.7k) and Retail Sales performance fell MoM (-1.3%) but Sterling will continue to be dominated by sentiment drivers around the EU vote.

UK preliminary GDP for Q1 will be released on Wednesday. The data is forecast to decline -0.2%, which would be fairly consistent with the Bank of England, OBR and UK Treasury all downgrading growth forecasts for the last few months.

UK CBI industrial trends data, providing a leading indicator for UK economic health, is scheduled for 11:00am and is forecast for a marginal decline in activity for April.

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The ECB kept interest rates and QE unchanged last week, which kept the Euro largely range-bound. On the calendar this week, German IFO business climate index (manufacturers, builders, wholesalers and retailers) kicked things off with a reading of 106.6 for April (Vs.107.1 forecasts) but with little else to drive the single currency, the Euro is expected to be at the mercy of other themes this week.

Last week, the US unemployment claims hit the lowest reading since 1973 but the USD had a mixed performance, losing ground against the Commonwealth currencies in a “risk on” environment, but gaining against the Yen when the Bank of Japan announced that they were considering other new stimulus measures.

We have seen the JPY pare some of Friday’s weakness as caution across the Asian territories has driven a safe-haven tone, which has moved USD/JPY towards 111.00. On Wednesday, the FOMC meeting will be the main focus this week. The Fed’s inflation gauge (1.7%) is still below the target (2%) and Yellen has expressed concern over Global risks, so forecasts are for a low chance of a rate hike this month. However, the market will, no doubt, look at the FOMC statement for clues on whether they will raise rates this June.

Last week, we saw the Commonwealth currencies push higher, but this week we have the RBNZ meeting, which may see another rate cut. Commentators are split over whether another cut will following last month’s rate cut so soon.

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Paul Plewman
Director of Sales & Operations
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