May puts a watered-down vote to the test

Key Movers

Fundamental data for the US was a bit of mixed bag yesterday. We kicked off with the quarterly GDP number. Economic growth slowed in the final quarter of the year with GDP posting 2.2 percent, missing forecast and down from the previous quarter. This does leave full year growth at 2.9% putting 2018 as the best year since 2015 and well above the 2.2% increase seen in 2017. However, given the recent slowdown in global economies pressure now mounts for 1st quarter GDP where slow growth is expected, and some are even looking for the 1st signs of a recession. Our estimate is for 1st quarter GDP to be below 2%.


The Dollar found some support after the downward revision of GDP through the unemployment claim numbers. The data highlighted claims fell to their lowest level in 2 months posting 211K where 222k was to be expected. 3 Fed members all spoke yesterday. They all sounded cautiously optimistic about the outlook, with St. Louis Fed President James Bullard, saying ‘it's premature to consider a rate cut’,
adding that he expects growth to pick up in the second quarter. China Trade talk was few and far between with Trump tweeting, "doing well in trade talks with China". In the past these comments have sparked a flurry, but markets seem to become immune to these now. Finance minister Mnuchin and trade representative Lighthizer had a ‘productive’ dinner with the Chinese delegation ahead of a full day of talks today between the two sides. Meanwhile, Larry Kudlow, Trump's economic advisor, tempered expectations, saying the US is willing to extend the process for weeks or months to get the right deal for the US, therefore this could trickle along a lot longer than most would have hoped.


Cable dropped to a low of 1.3037, this move predominately driven by Brexit concerns and EUR/USD dipped to a 3-week low of 1.1217.


In Europe, financial markets yesterday digested the indications from the ECB that a tiered
deposit system is under consideration. Long term inflation expectations dipped to its lowest level since September 2016 and this is keeping pressure on the Euro for now.


This morning we had the release of German retail sales. This rose by 0.9 % on the month in February vs. January’s +3.3% - the strongest rise since October 2016.


The Australian Dollar has continued its surge as concerns grow about a slowdown in the US. Just the one release overnight and this was private credit sector credit. The number showed credit grew 0.26% in February, while the annual growth edged lower to 4.2%. GBP/AUD has moved lower moving from a high of 1.8718 down to 1.84.


The Canadian Dollar traded sideways against the USD for most of the day yesterday. The Bank of Canada, which has put interest rate hikes on hold until data shows the economy recovering from a slump caused in part by low oil prices, is widely expected to sit on the sidelines at its next policy announcement on April 24. Today we should some more action as we get the month on month release of GDP.


The Kiwi, still feeling the effects of the Dovish RBNZ outlook, moved lowed against the USD yesterday. The RNBZ signaled the 1st rate cut could be in August. RBNZ Governor Adrian Orr spoke at an event hosted by the central bank today, Orr said that the central bank is focused on inflation employment objectives amid low, stable inflation and broad financial stability. GBP/NZD is in free-fall since London opening, this drop being driven by Brexit concerns and currently down at 1.9185.