Last week we saw Sterling under pressure in large due to COVID related matters. There were also fresh reports that the UK would face vaccine supply difficulties over the next few weeks. This in turn could result in the slowing pace of the COVID vaccinations in the UK could ultimately delay the government’s plans to reopen the economy further with the reduction of restrictions in five weeks’ time. In addition, there were some reservations that the UK advantage over the Eurozone was set to narrow over the next few months. However, there was some positive news from the UK economy as the UK PMI construction index strengthened to its strongest reading since September 2014.
Oppositely, the single currency strengthened on vaccine hopes. Reports from EU Commission internal documents signal that the EU was on track to vaccinate close to 60% of the total population by the end of June, which would also imply that the EU is likely to exceed the target of 70% vaccination rates by the end of the Summer. The Euro has been trailing large parts of the developed world in terms of vaccine deployment so a pickup could restart a faltering economy.
In the meantime, focus in the US remains on bond yields and the path of interest rates. Fed Chair Powell was speaking at the virtual IMF meeting. He stated that monetary and fiscal policy, allied with the vaccination programme, is creating a brighter outlook. He also noted, however, that he wants to see a string of months like the latest strong jobs report and that the unevenness of the recovery is a serious issue. Powell added that the Fed needs to keep supporting the economy and there is a risk of a setback to the recovery if there is a renewed pick up in cases. He reiterated that short-term increases in inflation would be transitory. The rhetoric overall remained dovish and the dollar retreated to fresh 2-week lows. In the meantime, inflationary pressures are likely to keep the market focused on the path of interest rates in the US. Last week, factory gate inflation was 1% month-on-month to leave the annual headline rate at 4.2% – the highest since September 2011.
Looking of the week ahead, much of the focus will be on the US, both in terms of economic metric and rhetoric from FOMC Chair Powell. The bond yield and subsequent monetary policy speculation continues to focus market attention. Economic activity and inflation seem to be pushing higher whilst FOMC Chair has remained steadfast in his commentary regarding these metrics and the impact on momentary policy. The market continues to decipher data to try and articulate when and what changes are required for central bank tones to change.
- Eurozone Retail Sales
- MPC Member Tenreyro Speaks
- Fed Chair Powell Speaks
Retail sales from the Eurozone are expected to rebound from the contractionary figure last month. Bank of England, MPC Member Silvana Tenreyro is due to speak about economic shocks and trade at a webinar hosted by the Institute for International Economic Studies. The market will focus on the rhetoric for clues on monetary policy and views of the economy given the positive rollout of the vaccine. The main focus of the day will be on Fed Chair Powell who is to discuss the economy in an interview conducted by 60 Minutes.
- UK GDP (monthly)
- GER ZEW economic survey
- US CPI (inflation)
The market will watch economic data closely today with three key metrics due for release. The monthly GDP from the UK is due for release and expected to show growth returning, albeit at a fairly tepid rate of 0.5% from a contraction in the previous month. Moving forward, if restrictions continue to reduce this will be closely monitored to signpost the closely watched quarterly GDP. In Germany, the ZEW surveys German institutional investors and analysts for their current and 6-month assessment of the economy. Sentiment is expected to pick up. US inflation data is under the microscope following the pick up in bond yields and in particular factory gate inflation showing the fastest pace of inflation since 2011. The consumer price index is expected to show that inflation continues to rise on the monthly basis.
- ECB President Lagarde Speaks
- Fed Chair Powell Speaks
- US Beige Book
ECB President Lagarde is due to speak at an online event hosted by Reuters. Previously she has maintained a more optimistic stance than the overall market. Last week, there were reports from EU Commission internal documents that the EU was on track to vaccinate close to 60% of the total population by the end of June. The market will be keen to articulate her stance on the economy moving forward and the potential recovery if we see the pace of vaccination pick up. In the meantime, FOMC Chair Powell is due to speak at the Economic Club of Washington, via satellite. The market will keep a close eye on his rhetoric especially with recent pick-up in inflation.
- US retail sales
- US weekly jobless claims
- US Empire manufacturing
The market will focus on US data today as there a number of key releases. The key theme the market will be looking for are growth and recovery metrics. Retail sales are expected to bounce back from the contractionary figure of -3.0% and post a positive reading of 5.3%. In the meantime, labour data and manufacturing data will also be closely monitored. If we continue to see a continuation in the economic recovery, then the monetary policy and when changes could happen may come even more into focus.
- EZ CPI (inflation)
- US UoM Consumer Sentiment
The second and final reading of Eurozone inflation is due for release and not expected to show any change. In the meantime, with the pick in economic data and stimulus measures by the US government, the UoM Consumer Sentiment is expected to mirror and show a substantial pick up.
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