Wednesday 25 April 2018

Daily Market Update: Events in Brussels Bring Sterling Back into Focus


Darren Thornberry

Tragic events in Brussels dominated the headlines yesterday and markets reacted with European shares going lower initially, particularly travel sector stocks including airlines and hotels.

Inevitably, safe‐haven assets such as gold and government bonds went higher in price. On the currency front, GBP weakened against all the majors, particularly against the dollar as the argument for a Brexit strengthens.

In terms of economic data yesterday, flash Eurozone PMI’s for March were released and overall they came in a little stronger than expected. Manufacturing PMI rose to 51.4 in line with forecasts with the Services and Composite PMI’s surprising slightly to the upside. Services rose to 54 and the Composite rose to 53.7 versus forecasts of 53.3 and 53.0 respectively.

German IFO figures for March were also released and they too were better than expected as companies became more upbeat about their current situation and their business outlook. German IFO figures showed that the Business Climate, Current Conditions and Expectations all rose last month, following three consecutive declines. German ZEW figures for March were out as well and they showed continued growth but by less than expected, with Investor Expectation coming in at 4.3 and Current Conditions coming in at 50.7 against forecasts of 5.4 & 53 respectively.

In the UK, we had inflation data out for February and that confirmed the rate remained at 0.3% (surveys predicted a rise to 0.4%) with core inflation also unchanged at 1.2%, as expected. The data softened the pound a fraction but it was the unfortunate events in Brussels that we feel pushed sterling weaker through the day.

The Fed’s Patrick Harker was speaking last night and he continued with the hawkish tone that we saw from other Fed speakers earlier in the week. Harker said ‘there is a strong case that the FED needs to continue to raise rates’ and that he ‘would rather see the FED raise rates more than twice in 2016’. Chicago’s Fed President Charles Evans was speaking at a separate event and also said he expected to see two more rate increases this year, based on the current economic outlook.

In terms of the majors yesterday, EUR/GBP opened at 0.7820 and climbed as high as 0.7905 during the day before finishing around the 0.7885 level. EUR/USD opened at 1.1250 and went to 1.1189 before finishing the day around 1.12. Cable opened at 1.4372 and fell below 1.42 to 1.4191. It continues to slide and is around the 1.4175 level as I write.

There is very little Economic Data out today but the ECB’s ‘Weidmann’ is speaking around lunchtime with consumer confidence figures from the Eurozone also out in the afternoon. Over in the US we have New Home Sales out at 3.00pm and they are expected to have risen in February.

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