European FX Outlook: UK wages set to turn positive for the first time since January 2017

What you need to know before markets open

  • China’s GDP growth exceeded expectations in the first quarter of 2018 with the data set including retail sales beating confirming steady growth projection for China.
  • The UK labor market report headline Tuesday will all eyes on wage growth that is expected to rise above the inflation rate for the first time since January last year boosting Sterling and rate hike expectations. For details read my Preview here.
  • German investors sentiment indicator is expected to confirm further slowdown as the trade wars and strong Euro seems to derail the expectations of bright economic future.
  • The US is scheduled to report on housing market data, but more importantly, set of Federal Reserve officials is due to speak during the day highlighted by San Francisco Federal Reserve President John Williams speaking in Madrid this morning.

Tuesday’s market moving events

  • China’s GDP rose 6.8% y/y in Q1 2018 beating the market expectations.
  • China’s retail sales rose 10.1% m/m in February up from 9.7% y/y in January.
  • China’s industrial production decelerated to 6.0% y/y in February from 7.2% a month earlier.
  • Japan’s industrial production rose 0% m/m in February after revision while rising 1.6% y/y.
  • The UK average weekly earnings including bonuses is seen rising 3.0% in three months to February, while wages excluding bonuses are seen rising 2.8% at the same time.
  • The UK unemployment is expected to remain steady at 4.3% in three months to March while claimant count is seen rising 5.0K.
  • German ZEW investors sentiment indicator is expected to fall to -1.6 in April from 5.4 in March.
  • The Eurozone ZEW index of investors sentiment is also expected to decelerate to 7.3 in April from 13.4 in March.
  • The US building permits are seen rising 0.7% m/m to 1.328 million in March while housing starts are seen rising 1.9% m/m to 1.269 million.
  • Canada’s manufacturing sales are expected to rise 1.1% m/m in February after falling -1.0% in January.
  • San Francisco Federal Reserve President John Williams is scheduled to speak about monetary policy at a global symposium co-hosted by the National Association for Business Economics and Bank of Spain, in Madrid at 13:15 GMT.
  • The US industrial production is expected to rise 0.3% m/m in March.
  • Federal Reserve Governor Randal Quarles is due to testify on supervision and regulation before the House Financial Services Committee, in Washington DC at 14:00 GMT.
  • Philadelphia Federal Reserve Bank President Patrick Harker to speak at Saint Joseph's University in Philadelphia at 15:00 GMT
  • Chicago Federal Reserve President Charles Evans is due to speak about current economic conditions or monetary policy at a Chicago Rotary Club Luncheon event in Chicago at 17:10 GMT.

Major market movers

  • Sterling is a mover of this week jumping up to 2018 high of 1.4355 earlier on Tuesday after ending last 1.4209 being boosted by expectations of strong wage growth in the UK that in turn feed the rate hike expectations. For details read my Preview here.
  • Read more about How to trade the UK wages with GBP/USD here.
  • US Dollar was steady after falling lower against majors in Europe on Monday.

Monday’s macro summary

  • The Rightmove UK house price index rose to an all-time record in March with the average UK house price jumping up 1.5% m/m while rising 201% over the year in March to £304.504 with house prices in London falling for the seventh consecutive month on the annual rate basis.
  • German wholesale price index remained unchanged from March while increasing 1.5% y/y.
  • Swiss factory gate inflation fell 0.2% m/m in March while increasing 2.0% y/y.
  • The Bank of Japan Deputy Governor Wakatabe praised the BoJ’s policy saying the benefits outweigh the cost of the BoJ’s policy and there is no major disruption to Japan's financial intermediation.
  • The US retail sales rose 0.6% m/m in March with the control group of retail sales that are included in GDP rose 0.4% m/m meeting the market expectations.

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