Key Points
Minimal data releases for UK and EU this week.
Focus remains on USD with Non-Farm Employment and Pay data set to show growth despite falling compared to last month’s figure.
Market Update
GBP
Sterling again struggled last week, losing ground for the third week in a row, as sentiment toward the UK macro backdrop continued to sour after the latest inflation data showed a shallower than expected decline in headline CPI, along with a sharp acceleration in core inflation to a 30-year high 6.8%.
This, in turn, led to a hawkish repricing in gilt and money markets, with traders now expecting a further 100bps of BoE hikes, taking the terminal rate to 5.5%; however, with the UK facing stagflation, this is unlikely to prove a bullish catalyst for the GBP, with such a significant amount of additional tightening significantly deepening the economic slowdown the UK is set to face.
Looking ahead, this week is rather light on economic data, besides the final read on May’s manufacturing PMI gauge, which is unlikely to be market-moving; BoE speakers are also rather thin on the ground, with only hawkish external MPC member Mann set to make remarks.
EUR
In keeping with the broader theme of continued USD strength, the common currency also faced headwinds last week, notching a third straight weekly decline, the EUR’s worst weekly run since last July, with spot falling below $1.08, to its lowest levels since late-March.
Sentiment towards the EUR seems to have turned dramatically, with numerous crosses (EURGBP, EURAUD, EURCAD, etc.) also looking rather toppy, and signalling that the bull run has exhausted itself, despite ECB speakers remaining hawkish, and the prospect of a September rate hike becoming more realistic.
This week, the latest ‘flash’ inflation data is likely to be the market’s primary focus, as the debate over how long the ECB continue to tighten rolls on, while remarks from a plethora of central bank speakers will be watched in the same vein.
USD
The greenback remains the ‘pick of the bunch’ in G10 FX, rallying for a third straight week last week, and touching its firmest against a basket of peers since mid-March, as the hawkish Fed repricing continued, sending Treasury yields substantially higher at the front end of the curve, while also benefitting from a ‘flight to quality’ as the debt ceiling drama continued.
Despite the debt ceiling being resolved over the weekend, the USD’s bull run seems unlikely to end soon, with the market still having room to price out further Fed cuts later this year, and with incoming economic data continuing to prove more resilient Stateside than elsewhere.
This week’s key event comes on Friday, with the May labour market report set to again show an impressive pace of job creation, along with steady earnings growth; another resilient report would further strengthen the buck, while also likely leading markets to upgrade the chances of a June Fed hike from the present 58%.
World News
Asda is expected to increase its expansion into the convenience food stoor sector after acquiring the petrol station giant EG Group for £2.7bn, following the purchase of 129 forecourts from the Co-Op last year. EG has approximately 350 petrol stations and over 1000 food to go locations, the merger means the companies now have a combined revenue of £30bn and 166,000 staff. Asda have said this will benefit consumers by offering highly competitive fuel prices.
Amazon are set to offer parents term-time-only working contracts in order to encourage more parents to get back into work with flexible contracts. Workers will be able to take 6 weeks of holiday in the summer and 2 weeks at Easter and Christmas to help with the availability and cost of childcare. However, GMB Union are still calling for a pay rise to £15 an hour, up from £11.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 30th May | US | CB Consumer Confidence | 101.3 | 99.1 |
| Wednesday 31st May | CA | GDP m/m | 0.10% | -0.10% |
| Thursday 1st June | US | ISM Manufacturing PMI | 47.1 | 47 |
| Friday 2nd June | US | Average Hourly Earnings n/n | 0.50% | 0.30% |
| Friday 2nd June | US | Non-Farm Employment Change | 253k | 191k |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7627.2 | 7627.2 |
| DAX | 15952.73 | 15962.31 |
| CAC40 | 7303.81 | 7279.88 |