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Trump and Kim meeting lifts global markets.

By Jake Trask

Sterling slipped yesterday as April’s Manufacturing Production m/m saw its biggest decline in output since October 2012. The -1.4% print was far worse than the rise of 0.3% forecast and GBP/USD dropped around half a cent as a result. Worryingly for the sector it looks like the bad weather we had in March can’t be held responsible for the fall so it could be indicative of something more serious for the UK economy. Adding to sterling’s woes the UK trade deficit widened by over £2b for April compared to March. It’s another busy day today for the pound with UK wage growth numbers due this morning and the Brexit bill returning to parliament for debate after multiple amendments were requested by the House of Lords. GBP/USD sits around 1.3380.

There is a risk-on rally in the markets this morning as US President, Donald Trump and North Korean President, Kim Jong-un met in Singapore, the first face to face meeting between leaders of the two countries. President Trump tweeted that the meeting had gone “better than anyone could have expected” with follow up talks already being planned. Asian markets have risen and USD/JPY has pushed through 110 on the news. Data-wise we have US CPI numbers released this afternoon which may give further support to the idea of four rate hikes from the FOMC this year should they beat expectations. The main driver for the dollar this week however will be the interest rate decision from the Fed tomorrow, with a hike of 25bps all but guaranteed however the accompanying press conference and statement will be scrutinised for clues on the future path of policy.

EUR/USD is currently hovering around 1.18 at present with markets awaiting a series of key central bank decisions later in the week. As well as the aforementioned US Fed decision tomorrow we also have the European Central Bank set to meet on Thursday where an announcement on a possible taper of its Quantitative Easing program looking likely to be on the cards. There are various scenarios which could affect the value of the euro with it likely to weaken if no tapering is confirmed and they decide to wait until July to announce a change of tack. Should a reduction of asset purchases be confirmed then the value of monthly purchases and the length of the extension will be key. Should the ECB shock the markets and confirm they are ending their QE program altogether in September (which is an outside bet) then we can expect the euro to surge. An extension at a reduced rate through to the end of the year seems likely so any deviation from this will move the single currency. Data-wise we have the monthly German ZEW Economic Sentiment due at 10am with a further fall to -14.6 expected in the closely followed gauge.

Australia enjoyed an extended weekend with the Queen’s Birthday holiday seeing Aussies enjoy a Monday off work. Risk-on trade on the back of the Trump/Kim meeting has seen AUD/USD push back through 76 cents overnight as the concerns raised by the G7 meeting fall into the background. The next event of note from Down Under will be a speech by Reserve Bank of Australia Governor, Philip Lowe in Melbourne which is due overnight. GBP/AUD is around 1.76.

Despite the antipodeans rising on the back of the Trump/Kim meeting the reaction from the loonie has been more limited despite a rise in the price of oil at the start of the week. The tensions arising from the G7 meeting between Trump and Canadian Prime Minister, Justin Trudeau are possibly a factor weighing on the local dollar with USD/CAD back below the 1.30 handle. There is little data of note this week from Canada so Trump, FOMC, ECB and oil are likely to hold the biggest influence over CAD. GBP/CAD trades at 1.7430.

NZD/USD remains above 70 cents having bounced off the big number during the Asian session. Upward momentum from the Trump/Kim meeting is aiding the Kiwi and external factors will be the main factors that move NZD in a week devoid of local data. GBP/NZD trades at 1.9060.