US Session Forex Brief, May 17 – Core Inflation Ticks Higher in Europe, While Brexit Talks Fail
Skerdian Meta • 4 min read
Yesterday the sentiment improved in financial markets, especially during the US session. We witnessed that by the 60 pip climb in USD/JPY or better yet, by the surge in stocks during the afternoon. There wasn’t much of a reason behind that reversal in the market sentiment because the trade war is ongoing and it is in fact escalating further. But I suppose markets needed to refresh after being bearish all week.
The final estimate for CPI inflation in Europe was released this morning and core inflation ticked higher to 1.3% YoY, which means a 0.5% jump in April. But that might be due to the Easter holiday period, so we have to wait for this month’s numbers.
The Brexit talks between Tories and the Labour Party failed in Britain and the GBP continues to slide lower as chances of the Brexit deal passing the Parliament vote have now diminished.
- China Might Suspend Trade Negotiations – A statement was published by Taoran Notes, a social media account affiliated with China’s state media and it said that China might pull back from trade negotiations with the US if the US is not sincere. “If there is no real concrete action by the United States, it will be meaningless for you (Mnuchin) to come and talk. It is better to suspend the consultation completely and return to the normal working track… The US does not show any sincerity in continuing talks… Instead, it is extending its pressure tactics. The US on one hand says it engages in talks, but on the other hand keeps using petty tricks to destroy the atmosphere for talks.”
- Eurozone CPI Inflation – The consumer price index inflation report was released this morning from the Eurozone. This is the final reading after the prelim numbers released earlier. Eurozone final headline inflation for April remains at 1.7% YoY for the headline CPI number, as the prelim reading showed. Although, core CPI ticked higher to 1.3% from 1.2% in the first reading. This means that core inflation jumped 5 points YoY higher last month, from 0.8% to 1.3%. On a monthly basis, CPI grew by 0.7% in April. Final inflation reading remained unchanged but core CPI ticked higher. Although, these numbers might have been affected by the Easter holiday, so we have to see how it is in the coming months.
- Eurozone Construction Output – The construction output report was released together with the inflation report. The construction output for March declined by 0.3% against increasing by 3.0% previously. Construction output YoY comes at 6.3%. Prior was 5.2% but was revised higher to 7.6%.
- Brexit – According to Reuters, a Labour party source said this morning that there is no point in doing a deal with a government which is about to collapse. Later on, Labour party leader, Jeremy Corbyn, appeared saying that Brexit talks with government have ‘gone as far as they can’. He added that Labour will continue to oppose May’s Brexit deal. They will consider any new proposals from government on Brexit but Tories’ move to select new leader has eroded government’s authority. So, no Brexit deal then.
- Trade War is Weighing on China – SCMP reported a while ago, citing a senior Chinese Communist party official. The report concluded that the trade war with US could reduce China’s growth by 1% this year. This will hurt the AUD and the NZD in the coming months if things don’t improve.
- US Prelim UoM Consumer Sentiment – The US consumer sentiment has been on a slowly declining trend at the start of this year. The UoM consumer confidence peaked above 100 in September. Although, in December it posted a steep decline of around 7 points, from 98.75 to 90.7 points. That might be a result of the US government shutdown which was the longest in history, leaving around 800,000 federal workers without a paycheck. Although, the confidence grew in February to 95.5 points, which was revised down to 93.8 points. In March, this indicator was expected to come at 95.5 points again but beat expectations jumping to 98.4 points, so the trend has now reversed. We saw a slowdown in April again to 96.9 points, but the first reading this month showed an improvement to 97.2 points and it is expected to improve further to 97.8 points today.
- US Prelim UoM Inflation Expectations – The US inflation expectation from the University of Michigan used to be at 2.9% in Summer last year, but they have been declining steadily since then, bottoming at 2.4% in the last several months. Although, the final reading from last month showed that inflation expectations ticked a point higher to 2.5%. There are no expectations for the prelim reading for this month, but let’s hope it also ticks a point or two higher.
- The main trend remains bearish
- The downtrend has picked up pace
- The 20 SMA is providing resistance
- Fundamentals are bearish
The 20 SMA s providing provided solid resistance again today for GBP/USD
The GBP has turned massively bearish now as we head towards the final Brexit vote in the British Parliament. The talks between the two main parties failed to reach a conclusion and they ended today, so it seems that there will be no Brexit deal. GBP/USD turned bearish last week and the bearish trend has picked up even more pace this week. The 20 SMA (grey) is also doing a good job as resistance and it keeps pushing the price lower, so we are bearish on this pair.
The sentiment improved yesterday and stock markets made quite a climb as they turned bullish. But that wasn’t going to last since the trade war is escalating and today’s comment by China made that clear. The sentiment turned negative again and stocks are bearish today as is USD/JPY. The failed Brexit talks in UK are also adding to this sentiment, so expect markets to be cautious until the week closes in the evening.