Market Drivers May 25, 2018
UK GDP in line
Nikkei -0.06% Dax 1.05%
Europe and Asia:
EUR GE IFO 102.2 vs. 102.0
GBP UK GDP 0.1% vs. 0.1%
USD Durable Goods 8:30
USD U of M
It’s been a choppy night of trade in FX with dollar first gaining then losing its lead against the majors in meandering, listless end of week trade ahead of a holiday weekend in North America.
The economic data offered little fresh news coming in essentially in line with expectations. The German IFO report printed at 102.2 versus 102 forecast stabilizing for the first time in five months. The index was as high as 117 in January but has since fallen off a cliff as activity in the region slowed markedly.
According to IFO chief economist Klaus Wohlrabe the stable reading suggests that the decline in business sentiment declined, but after one month of data it may be premature to make that call. With turmoil in Italy and trade pressures from US the region remains in a state of flux and its doubtful that demand will rebound quickly under the present conditions.
In UK the GDP came in line at 0.1%. household spending rose only 0.2% – its weakest reading since 2014 and business investment declined by -0.2% vs. 0.3% the quarter prior. Overall there was little upbeat about the report as it showed that the slowdown in Q1 was not an aberration due to weather conditions but rather a structural deceleration of demand. Difficult to imagine that BoE will proceed with rate hike in August under such conditions unless growth rebounds significantly in Q2. Cable popped to 1.3365 on the news, but remains subdued and the risk of a run of 1.3300 stops remain in place.
With holiday weekend ahead in US, trading is likely to slow to a crawl by midday New York and the key question for FX will be how risk sentiment flows will play out into the weekend. The calendar only carries Durable Goods and U of M data, so the trade in FX will be driven by equity flows. If stock traders choose to liquidate ahead of the week, the risk off flows could pull USDJPY back below 109.00 as the day proceeds.