Inflation keeps softening in the US

Daily Briefing, May 10 – Market Wrap & Key Economic Events to Watch Today

Posted Friday, May 10, 2019 by
Arslan Butt • 3 min read

Good Morning, traders.

It’s gonna be a busy Friday as we have UK’s GDP, US Inflation and speeches from central bank officials. Buckle up for the volatility. Well, before we get into the details, let’s take a look at the market wrap.

Market Wrap

  • Equity markets are on course for one of their worst weeks since last October as US-China trade war continues to weigh on investor sentiment.
  • The Trump administration is hiking duties on $200 billion worth of Chinese products to 25% from 10%.
  • President Donald Trump elevated the stakes in his trade dispute with China as the US increased tariffs on $200 billion in Chinese goods.
  • Safe haven currencies continued to play well with the Yen placing fresh highs again against the dollar.

What’s Next?

Looking forward at today’s sessions, there are plenty of high impact events in addition to the trade negotiations in Washington. During the European session, the focus will move to the UK with GDP and Manufacturing Production figures.

While headline inflation figures from the United States are due in the New York session. Here’s what to expect.

Great Britain Pound – GBP
GDP q/q – At 8:30 GMT, you should see the GDP data which is forecast to grow at 0% rate vs. 0.2% as the British economy grew at a slower pace in Q1 2019.

Especially, after the downbeat inflationary assessment by Mark Carney & team, we can expect a drop in GDP figure. Sterling is under heavy selling pressure as the BOE Gov Mark Carney hasn’t said much about the next rate hike. In fact, the rate hike sentiments are falling apart, causing bearishness in the pound. A slight divergence in the data can cause a massive movement in the Cable.

Manufacturing Production m/m
In addition to the GDP, the UK economy is expected to release the manufacturing production and trade balance numbers at the same time. The manufacturing production is forecast to drop to 0.1% vs. a massive gain of 0.9% previously. The trade balance carries expectations of a -13.7B deficit which isn’t good, but it’s lower than -14.1B prior.

Canadian Dollar – CAD

Employment Change – It’s always exciting to trade events like Canadian employment change as it’s highly unpredictable and the market often exhibits massive fluctuations on its release. Especially, if the data reports a sudden rise or drops in the employment change.

Employment Change used to release with the US NFP at 13:30 GMT, but this time it’s releasing with the US CPI data. Therefore, we get to see both data before placing a trade.

Employment Change is expected to have added 11.7K jobs vs. -7.2K employment in March.

Unemployment Rate – Canadian labor market figures seem stable due to stability in crude oil prices, especially after the phase of a dramatic drop in the crude oil prices is over. With that, economists are expecting no change in the unemployment rate as its likely to stay muted around 5.8%.

U.S. Dollar – USD

CPI m/m – The inflation figures are highly correlated with labor market figures as it’s all about consumption and people usually consume more when they have a job, or when their business is booming.

Looking at the US labor market report for April 2019, the figures were positive. The US market added 263K jobs which are significantly higher than the forecast of 181K. The unemployment rate fell from 3.8% to 3.6%, and the average hourly earnings remained steady at 0.2%. So, better labor market conditions could trigger demand in the market, ultimately supporting prices.

Economists are expecting a slight jump in the US core inflation figures 0.1% to 0.2%. The inflation is expected to remain unchanged at 0.4%.

The unexpected drop in inflation could trigger sell-off in the US dollar and stock markets, while it can extend support to gold.

Good luck, and stay tuned to FX Leaders for more updates and trade ideas.

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