Sterling fell in a dramatic fashion yesterday as April’s economic growth data showed the economy shrank by 0.4% on a monthly basis. The fall in economic growth was driven by car manufacturing leaving the UK. The manufacturing sub-index led the losses with production in that area falling 3.9% in April, while the production sector also shrank at an alarming rate of 2.7%. This may only be a transitory reading of the UK economy, especially given the automobile effect in April due to many production plants closing down, but the release added to the pile of negative Brexit effects weighing on the pound. Meanwhile in Brexit; 10 Tory MP’s have passed the first hurdle to make it into the leadership race, with the next deadline set for Thursday this week. Bank of England hawk Saunders also hit the wires yesterday, saying the central bank doesn’t have to wait until all of the political uncertainty around Brexit is resolved to raise interest rates. This had a muted impact as the scenario of resolved political uncertainty in the UK isn’t in the immediate future, while the market also knows Saunders stance is inexplicably hawkish in comparison to other policy setters in the BoE. Today, at 09:30 BST, UK Labour market data is released. Bloomberg economists have a fairly bleak outlook on the labour market in April expecting a loss of 20,00 positions and a fall in wage growth from 3.3% to 3.1%. Analysts expectations are only marginally more optimistic, but just like the GDP release, today’s data is likely a blip in the data instead of highlighting a downturn in the UK economy.


With most of continental Europe out of the office to enjoy the Pentecost Monday bank holiday, movements on euro crosses remained muted yesterday. Italian April Industrial Production showed a severe miss at -0.7%, while the March growth was downwardly adjusted as well. This weak data point follows on the poor German Industrial Production data of last week, which is not a very hopeful sign for the Eurozone IP figures scheduled for Thursday. This sector will likely have a negative contribution to Q2 growth, posing a challenge to the rest of the economy like services to supersede this hurdle. Meanwhile, fixed income markets appear to be taking an optimistic view on the chances for Italy to keep its deficit within bounds accepted by the European Union. Yields on Italian 10-year bonds fell to the lowest point in almost 13 months this morning as the Prime Ministerial office of Giuseppe Conte issued a statement that he and Finance Minister Giovanni Tria will be meeting with the two deputy Prime Ministers Luigi di Maio and Mario Salvini to avoid an infringement procedure for the country.


The US dollar saw a welcome boost yesterday following the immigration trade deal passed over the weekend that subdued tensions with neighbouring Mexico. However, the greenback slipped from its highs yesterday after President Donald Trump threatened to raise tariffs on China again if President Xi Jinping doesn’t meet with him at the G20 summit at the end of the month. Trump, speaking to CNBC yesterday, said there would be a bilateral meeting in Osaka where “the differences can be worked out very easily”. Should Xi prove a no show, which remains pure speculation given the silence of Chinese authorities over the matter, Trump has threatened to impose levies on a further $300bn of Chinese goods. This rocked markets and reiterated that respites in trade tensions are just that, respites. Any calming of tensions is proving temporary and has caused increased volatility in markets as investors await the next batch of threatening tweets from Washington. With Fed officials remaining quiet ahead of next week’s FOMC meeting, the spotlight will be on Trump’s stance towards China along with the producer price index release at 13:30 BST for May.


The loonie got caught up in a broad risk-off move yesterday as Trump’s statements to CNBC sparked concerns about further tariffs on China and a more entrenched global slowdown. Not only did oil fall yet again but the loonie followed suit with USDCAD rallying 0.13%. Yesterday also saw building permits increase dramatically from 1.8% to a record high of 14.7% as companies accelerate work ahead of a development fee increase in Vancouver.