The UK CBI retail sales index recovered slightly to -50 for May from -55 the previous month with most of the improvement due to increased demand within the grocery sector. Import penetration declined sharply on the month while pricing pressures remained weak and investment plans were scaled back.
In comments yesterday, Bank of England chief economist Dominic Haldane commented that negative interest rates were a policy option under review with an assessment of the potential impact on the financial sector and policy effectiveness. He reiterated, however, that the bank was not remotely close to a decision. He also stated that some recent data had been slightly better than the bank’s central scenario, but that the recovery would be slow with pre-covid output levels not expected to be seen until the end of 2021. Markets were less confident that negative interest rates would be implemented which supported Sterling sentiment to some extent.
There were also reports that the EU was prepared to make concessions on fishing within the UK/EU trade talks which underpinned sentiment. The UK currency gained support from the general improvement in risk appetite and a weaker US currency. There was a peak above 1.2350 against the dollar before a slight correction while the Euro dipped over 1.13 before retreating slightly. The UK currency was little changed this morning.
The US Chicago Federal Reserve (Fed) National Activity index plunged to -16.7 for April from -5.0 for March, a record low for the index by a substantial margin. The Philly Fed non-manufacturing index recovered to -41.4 for May from the extreme reading of -82.5 for April, although this was still the second-lowest reading on record. New orders declined at a slower pace while companies were notably more optimistic over the outlook.
US consumer confidence recovered slightly to 86.6 for May from 85.7 in April, although this was slightly below consensus forecasts. There was a further slide in the current conditions index offset by a recovery in expectations. New home sales data was much stronger than expected at 623,000 from 619,000 previously.
The dollar overall remained on the defensive as risk appetite held firm yesterday and against the Euro pushed to highs just below the 1.1000 level. The US currency was able to stage a limited recovery overnight amid Chinese tensions with the Euro just above 1.0950.
The Euro registered gains yesterday against the Dollar, stopping again however, just short of 1.10 key level, keeping intact the multi-week trading range.
With ECB’s President Christine Lagarde scheduled to speak this morning. Her stance on the central bank's response to the coronavirus outbreak and whether it stands ready to do more if required will be the main focal point. Lagarde has long been calling for fiscal stimulus, which the Eurozone governments are yet to deliver and is likely to reiterate the need for governments to do more and support the central bank's efforts in battling the virus-induced slowdown.
The European Union are also likely to unveil their stimulus package on how to help the bloc recover from the economic slump.
As of writing the Euro trades just below the 1.0960 against its US counterpart.
Data to watch
07:30 - EUR - ECB President Lagarde Speaks
Posted in Daily Market News on May 27 2020