May 20, 2022

Daily Report 20/05/2022

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Sterling found support on dips in early Europe on Thursday with failure to keep the pair below 1.2350 against the dollar triggering a further rebound on short covering. The CBI industrial orders index strengthened to 26 for May from 14 previously and above consensus forecasts of 11. Manufacturers were more confident over orders and output, but cost pressures remained acute with expected growth in prices close to record highs and overall sentiment remained weaker. There was some relief that the Metropolitan Police concluded the investigation into Downing Street coronavirus restriction breaches. Sterling benefited from a net recovery in risk appetite and a further round of short covering.
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The Euro-zone current account dipped into deficit for March with a shortfall of EUR1.6bn after a revised EUR15.7bn surplus the previous month. The 12-month surplus narrowed to EUR219bn and 1.8% of GDP from EUR294bn and 2.6% of GDP the previous year.  ECB policy remained an important focus with reports that a majority of policymakers are prepared to back at least two 25 basis-point rate increases this year. Minutes from the April policy meeting reported that there was widespread concern over high inflation number and some members viewed it as important to act on policy without undue delay. There are now very strong expectations that the ECB will act to raise rates at the July meeting, but still important scepticism whether the bank will be able to secure support for a series of rate hikes, especially given Euro-zone growth risks.

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Initial US jobless claims increased to 218,000 in the latest week from a revised 197,000 previously and slightly above consensus forecasts of 200,000. The Philadelphia Fed manufacturing index declined sharply to 2.6 for May from 17.6 previously and below expectations of 16.0. There were, however, strongly monthly readings for new and unfilled orders as well as shipments. Employment indicators were mixed with strong employment growth, but a dip in weekly hours. Cost pressures remained strong, but there was a slight easing of price readings. Companies were less optimistic over the outlook and expect a slight easing of inflation pressures. There was a tentative recovery in risk appetite after the Wall Street open with a strong rally in commodity currencies and the dollar also posted sharp losses.

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