- Investors prepare for less accommodative global monetary policy;
- Profit taking seen in bonds, stocks and currencies;
- Oil on course for seventh consecutive daily gain but downside pressure remains;
- US inflation, income, spending and consumer data still to come.
As the week, month and quarter draws to a close, we appear to be seeing some profit taking after what has been a very interesting week for markets.
This week has seen a number of central bankers adopt a more hawkish view on their respective monetary outlooks which has pushed up yields and seen the pound, euro and Canadian dollar quite heavily bid. The comments also appear to have weighed on equities in recent days as investors prepare for the end of ultra-accommodative monetary policy from some of the world’s largest central banks.
While the process is likely to be very gradual which means monetary policy will remain very accommodative for some time yet, the change in tone from the likes of the Bank of England hasn’t gone unnoticed, with investors previously not pricing in a rate hike in the UK until 2019.
Today though we’re seeing some profit taking on the week’s moves, with the pound stumbling once again just above 1.30 against the dollar and the euro just above 1.14, also against the greenback. Both of these levels are also notable technical levels, having provided resistance in the past so it’s perhaps not surprising that we’re seeing the same again. Despite this, I wouldn’t be surprised if these levels are broken over the next couple of weeks, assuming the same policy makers don’t backtrack on what has been said this week, something someone at the ECB has already tried to do this week in the case of Mario Draghi.
One area where we’re not seeing this is in oil, which has recovered off its seven month lows – reached last week – to record six consecutive daily gains and is now on course for a seventh. Whether this can be maintained is yet to be seen with investors clearly expressing significant doubts about the effectiveness of the production cut that was extended only last month until the first quarter of next year. As it is, this still looks like a corrective move and I wouldn’t be surprised to see more downside pressure next week.
We may not have the abundance of central bank appearances today that we’ve had throughout the rest of the week but there is still a lot of economic data to come today from the US. UK first quarter GDP data this morning was unrevised at 2%, as expected, while CPI and core CPI inflation data in the eurozone topped expectations but remained well below the ECBs target of below, but close to, 2%. Still to come today we have inflation data for the US – core PCE price index, the Fed’s preferred measure – personal income and spending figures, UoM consumer sentiment survey and the Baker Hughes oil rig release.
