FTSE higher pound lower ahead of UK GDP and US Inflation

With the tech selloff still underway and high impacting data releases both in the UK and the US, trading could remain volatile right up to the close for the long Easter weekend.

With the tech selloff still underway and high impacting data releases both in the UK and the US, trading could remain volatile right up to the close for the long Easter weekend.

Trading overnight saw investors continue to rotate out of tech stocks, which have long been Wall Street’s darlings, into safer government bonds. Whilst the Dow managed to close flat, the S&P and the Nasdaq were dragged down by the continued tech selloff end 0.2% and 1% lower. The FTSE has since started higher.

After a relatively light economic calendar for the majority of the week, today could prove to be the most exciting day data wise.

UK GDP – no miracles expected

Expectation are for GDP to be 0.4% quarter on quarter and 1.4% on an annualized basis. Drawing comparisons with the US, which experienced economic growth of 2.9% and Germany at 2.2%, the hard-hitting impact Brexit is exposed.

Traders won’t be holding their breath for an impressive read here and no miracles are exected. Business investment remains weak thanks to Brexit uncertainties, and consumers were under intense pressure in the final quarter of last year.

Inflation was running at 3%, whilst wage growth was low at around 2.2% meaning a wage cut in real terms. Not the makings for strong economic growth.

GBP/USD fell steadily across the previous session following the robust US GDP reading. A weaker than forecast UK GDP print could see the pair continue to fall towards strong support at $1.40. The weaker pound could also offer support to the FTSE.

US PCE – Is the inflation story finally picking up?

Inflation ha been an issue at the Fed for most of the previous year. Despite strong economic growth, inflation has remained frustratingly stagnate, failing to exert any pressure on the Fed to hike rates. 

Some Fed policy makers have ear marked the lacklustre inflation levels as a reason to ease back on tightening monetary policy. However, given the two recent hikes these calls are currently being ignored.

Core PCE, the Fed’s preferred measure of inflation, is expected to edge slightly higher to 1.6% in February, up from 1.5% in January. 

However, there is growing doubt as to whether this will actually be achieved given the three months of declines in retail sales, core CPI remaining constant and personal spending and personal income also expected to remain constant.

As we pointed out, so far the Fed has continued to tighten policy as the economy strengthened, regardless that inflation remains below 2% target. 

However, will continued anaemic inflation encourage the Fed to take its foot off the gas as far as tightening is concerned in 2018?

The market is pricing in 78.8% probability of a hike in June. A strong reading could boost this closer to a certainty, simultaneously boosting the dollar. 

However, a weak PCE read of 1.5% could pull the dollar lower, raising doubts over a hike in June.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.