Market Drivers May 2, 2019
Europe and Asia:
- EUR PMI Manufcaturing Final 47.9 vs. 47.8
- GBP UK PMI Construction 50.5 vs. 50.3
North America:
- GBP UK BoE Inflation Report 7:00
- USD Weekly jobless claims 8:30
FX markets were relatively subdued in the aftermath of the FOMC presser with most of the majors contained to narrow ranges but with decidedly pro-risk tone through Asia and early morning London dealing.
The news that South Korean manufacturing PMI rose above the 50 boom/bust line as well statements from Trump administration that US-China trade talks were progressing smoothly helped fuel sentiment that trade conflicts may be coming to an end providing a better environment for global growth in H2 of this year.
For the most part, FX markets were happy to tread water. Yesterday’s FOMC presser produced little continuation in Asian trade today, but it did put a bid under USD/JPY as Chairman Powell appeared to rule out any prospect of a rate cut in 2019. Indeed he talked up the general robust state of the US economy and reaffirmed the Fed’s commitment to its 2% inflation target. Overall, however, the Fed remains resolutely neutral in its stance and will not move on rates until US wages begin to exert sustainable pressure upward. That’s why this months NFP will be crucial to any continuation in USDJPY rebound.
With no major data in North America today, the focus will turn to BoE which will deliver its quarterly Inflation Report as well as the rate decision today. The markets anticipate the central bank to hold steady, although cable could pop if the vote is 8-1 versus 9-0.
UK policymakers remain trapped by the Brexit dilemma as political considerations outweigh any economic response. The current 75bp rate is clearly too low for the growth environment in the UK which has been remarkably resilient despite the Brexit turmoil, but until there is a clear resolution on the issue the central bank is likely to err on the side of caution regardless of the data. Much of the reaction today will likely come from tone rather than any policy direction. If Governor Carney sounds an upbeat note expressing confidence that some sort of Brexit deal will be done, the cable could pop through 1.3100 figure as the day proceeds. If however, he remains cautious in his outlook suggesting that accommodative policy will be needed well through 2020, the cable could quickly give back its gains for the week.