Daily Market Brief – 28 April 2016

Central banks sit on their hands

Quote of the day: “To find opportunity, you must first believe it is there”

April 28th: Highlights

  • UK Q1 GDP shows provisional growth of 0.4%
  • Euro lower on the open as German data disappoints
  • US rates unchanged and FOMC suggests delaying rate hikes
  • JPY benefited when BoJ left policy unchanged

Market Comment

UK GDP data for Q1 fell to +0.4% (from +0.6% last month) while annual growth rate remained unchanged at 2.1%. Cable bounced from the day-low and Sterling gained against the Euro.

Gains were capped by further warnings over the negative impact of Brexit – an OECD study suggested that whilst Brexit would curb migration, it would result in a “major negative shock” to the UK economy and families could lose the equivalent of one month’s income each year.

Nationwide House Price data eased to a monthly reading of 0.2% (Vs 0.4%, down from 0.8% last month) and 4.9% for the year (down from 5.7%).

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The ECB’s Draghi said he is happy to explain and defend the ECB’s loose monetary policy to the German Bundestag but warned that excessive criticism could hurt the ECB’s effectiveness. The ECB is trying to build economic confidence, but while wrestling deflation and Greek debt levels resurfacing, they have their work cut out. Overall, the EUR continues to struggle as the market maintains a bearish outlook for the single currency.

Monthly unemployment data for Germany came in at -16k, worse than forecast, but the annual figure remained unchanged at 6.2%. Preliminary CPI inflation data will follow later today, which is expected to show inflationary pressure easing. This will support the ECB policy. German CPI is forecast at 0.1% (down from 0.3%).

The Dollar weakened overnight when the FOMC left rates on hold, as expected. One member (George) voted to hike by 0.25%, but the accompanying statement was little changed from last month, with assurances that the Fed will continue to monitor inflation indicators and wider global economic factors while warning that ongoing global uncertainty continues to pose a significant risk to the US economy. They also see inflation rising to 2% in the medium term.

Largely, the analysts were left unclear over whether the Fed have left June on the table, or if it is now ruled out for the next rate hike, but the market is currently pricing in only a 17% chance of a rate increase at the meeting next month.

Fed Chair, Janet Yellen, kept the door open for a possible interest rate hike in June but acknowledged that growth had slowed.

On the calendar today, we have advance GDP data due this afternoon. Forecasts are for a sharp drop in growth for Q1 at 0.7%, down from 1.4%.

RBNZ left rates unchanged for the second month running and the BoJ also left policy unchanged, but they also refrained from any additional measures, which the market had been looking for. The JPY rebounded over 3% overnight.

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Paul Plewman

Paul Plewman
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