Daily Brief

Platinum Jubilee

Celebrating the Queen

It’s a holiday-thinned week in the UK, with tomorrow and Friday quite rightly being bank holidays to celebrate the Queen’s Platinum Jubilee, marking 70 (and a bit) years since her majesty’s accession to the throne. That’s some record. The actual ‘day’ would have been 6th February, but given that was also the day that her father died, the Queen understandably decided to hold-off on the bunting until the sun came out. Interestingly, in the UK it sometimes feels as though the sun only comes out once every 70 years.

Walk-in ovens are finger lickin’ good

Back in 1952, (some) things were very different. No surprises there then. The first microwave ovens became available to the public, at a cost of roughly $1,200. Whilst the price has come down a bit over the years, so has the size, as the original microwave ovens were the size of large fridges. In 1952, the smog in London was so bad that it killed nearly 12,000. On a brighter note, 1952 also saw the release of the first ‘Mr Potato Head’ (in the U.S), and Kentucky Fried Chicken (KFC) opened their first restaurant, which was in (you guessed it) North Corbin. Obviously, NCFC was not an option, as that particular acronym was already taken by the good folks over at Notts County, who have been around for far longer than bargain buckets.

I’ll take your inflation and raise you

Annual average inflation in the UK was down at 5.3% (remember those days), whilst in the U.S it was a Japan-beating 2.29%. Talking of inflation, the cost of an average home in the UK was £1,891 back in ’52, which means that you could literally buy a house for a microwave oven, if we’ve got our sums right. Thirsty? a pint of milk was 4p, although soya and oat were slightly more expensive and came with a 40-year waiting list. Who needs those 2022 supply chain constraints?

Back to the future

The latest HICP (YoY/May) inflation data for the Euro-area, unsurprisingly marked a higher-than-expected print, jumping to 8.1%, up from 7.4% previously, against an expected increase to 7.7%. Furthermore, Irish inflation also rose above expectations (8.2%), and joined the likes of Germany and Spain in registering surging inflation for the region.

Will the ECB blink?

Whilst higher inflation is not exactly a surprise (for anyone), it leaves the ECB facing some difficult decisions as we approach their next meeting, which is just over a week away in Amsterdam. They are now under mounting pressure to accelerate the pace of projected rate hikes, with the current 25bps hike expectations from July onward looking like being too weak a response, against that sombre backdrop of surging inflation and a big rise to the cost of living. Across the member states, inflation now ranges from 20.1% in Estonia, to a mere 5.6% in Malta.

What about the single currency?

Despite the super-hot inflation, the single currency ran into a dollar-sized wall yesterday. EUR/USD slipped back below 1.0700 briefly, before moving back over 1.0725, having been unable to push above 1.0800. Month-end flows and a holiday-thinned week have left some liquidity air-gaps, so there may be a few bumps in the road for currencies before (and during) Friday’s nonfarm payroll report (more on that below). GBP/EUR continues to dance around a 1.1750 handbag. GBP/USD followed the single currency lower, slipping back under 1.2600.

A less confident consumer

The latest U.S Consumer Confidence reading (May) slipped to 106.40, after April’s print was revised higher to 108.6 from 107.3, which is a three-month low. Worries over higher inflation were a big factor to the decline in confidence, which follows-on from the weaker run of U.S data lately. The greenback moved higher on the day, with the dollar index snapping a 2-week losing streak, bouncing back toward 102.00. Weaker market sentiment could be considered a factor to the dollar rally. Perhaps the impending Powell and Biden meeting had an impact too. They were meeting for the 1st time (at the White House) since Powell’s renomination by Biden. Janet Yellen also attended the meeting, admitting that she ‘got it wrong’ on the outlook for inflation. Biden said that he would respect the Fed, and respect the Fed’s independence.

GDP and the BoC

The latest Canadian GDP report missed estimates, with a 0.7% (MoM/Mar) decline against an estimate of 0.9%, with a 3.1% (QoQ/Q1) print also coming in well below estimates of around 5.4%. However, that was then (March), and as we said yesterday, the BoC are unlikely to blink at the weaker growth reading, and are fully expected to hike rates in Canada by a further 50bps later today. Tellingly, USD/CAD has remained fairly rangebound below 1.2675, given the stronger greenback elsewhere as well as a slight softening in oil prices throughout yesterday.

What else is happening today?

ECB’s Lagarde and Panetta are speaking. In the U.S, it is the Fed’s Williams and Bullard. On the data front, the latest ISM Manufacturing report (Employment, New Orders, PMI and Prices). The pick of that particular bunch is Manufacturing PMI.

The pick of the rest of the week

Friday’s nonfarm payrolls will be closely monitored to see whether there have been any meaningful changes to the robust labor market over the past month. A slight softening on the headline from 428K to around 320k is expected. Clearly, any sizeable adjustments to the previous readings, as well as the overall unemployment rate, participation rate and average hourly earnings will also be closely monitored. Watch for the Private Payrolls (ADP) the day before for clues, although this may not be the best of indicators. Later during Friday, the latest ISM Services data is out for May. 

Watch out also for Euro-area retail sales which are due on Friday morning too. The yearly change is the pick for us. Normal play for us will resume on Monday.

 

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