The UK PMI manufacturing index was revised to a final reading of 55.8 from the flash reading of 55.3. Growth in new orders growth and there was significant weakness in export orders amid weak demand from the Euro area which was related in part to underlying Brexit issues. There was further strong upward pressure in costs with no companies reporting a decline in prices paid for the first time in the survey’s history while output charges increased at the fastest rate on record. Overall business confidence dipped to a 16-month low which reinforced unease over developments. Sterling was able to make headway ahead of the New York open with a slight peak. Underlying confidence remained fragile and Sterling was unable to sustain the gains. BRC data recorded an increase in shop prices of 2.7% in the year to April, the highest rate since 2011. Consensus forecasts are that that the Bank of England will raise interest rates by a further 0.25% on Thursday, but markets expect a dovish hike which will fail to support Sterling.
No Key Data
The latest German labour-market data recorded an unemployment decline of 13,000 which was close to expectations and followed an 18,000 decline the previous month. The Euro was able to find support against the dollar and was able to consolidate above this level ahead of the New York open. There were still important concerns surrounding the Ukraine situation, especially with fears over an escalation in fighting ahead of the May 9th victory day in Russia given that there will be strong pressure to show results. Latest rhetoric from President Putin provided marginal relief with comments that he was still open for talks with Kyiv. ECB council member Schnabel stated that the central bank may need to raise interest rates in July to combat extreme inflation and that it was time to act.
Key Data
10.00 Retail Sales (YoY) (Mar) Exp. 1.4% Prev. 5%
The Federal Reserve will announce its interest rate decision on Wednesday with strong expectations that the central bank will announce an interest rate of 50 basis points to 1.00%. Futures markets indicate there’s a small possibility of a larger 75 basis points increase. The rhetoric on inflation will be important with forward guidance from Chair Powell also a key element for asset classes. Markets will also be expecting a decision to start shrinking the balance sheet. A very hawkish stance would underpin the dollar while a more balanced assessment and reference to growth risks would increase the potential for a dollar correction.
Key Data
13.15 ADP Employment Change (Apr) Exp. 395K Prev. 455K
15.00 ISM Services PMI (Apr) Exp. 58.5 Prev. 58.3
19.00 Fed Interest Rate Decision Exp. 1% Curr. 0.5%
19.00 Fed’s Monetary Policy Statement
19.30 FOMC Press Conference