Last week’s BOE Super Thursday didn’t turn out so super for the British pound, but the tide could still turn this week with these major catalysts lined up. Here’s what you need to prep for!
1. Prime Minister May’s remarks (May 15, 8:00 pm GMT)
If there’s anyone who could turn everyone’s attention back to Brexit and kick things up a notch in terms of pound volatility, guess what? It’s gonna be May!
Back in April, Prime Minister Theresa May surprised the markets with a speech on how “every little thing I do never seems enough for you” then called for snap elections in June. After a bit of tossing and turning, pound bulls led the charge in the days that followed as traders realized that this could actually result to less political opposition, leaving the U.K. with a potentially stronger front during Brexit negotiations with tough guys from the EU.
This week, market watchers are expecting to hear more remarks from May reassuring that the U.K. economy has been resilient and that a more stable leadership is in the works. She is scheduled to participate in a Facebook Live Q&A hosted by ITV News so you can actually tune in to the event and react to any surprises in real-time!
2. U.K. inflation reports (May 16, 9:30 am GMT)
After the dust settles from May’s Q&A event (assuming it does), pound traders could turn their attention back to U.K. economic data. April inflation figures are up for release and are mostly expected to reflect a return in upside price pressures.
In particular, the headline CPI is projected to tick up from 2.3% to 2.6% in April while the core reading probably recovered from 1.8% to 2.2% in the same month. Note that four out of the last five releases have printed stronger than expected results and that headline CPI has been steadily climbing since November last year.
Underlying inflation figures such as the producer price index, retail price index, and house price index are likely to influence pound movements as well since these provide clues on how overall price levels could fare in the months ahead. PPI input and output prices expected to weaken slightly while the retail price index could rise from 3.1% to 3.4%.
However, keep in mind that upbeat inflation readings might not be such good news for the U.K. economy this time around, especially since the BOE emphasized that the consumer sector is having a tough time keeping up with sharp price gains.
3. U.K. jobs data (May 17, 9:30 am GMT)
Market watchers might get a better idea of whether or not British consumers can keep calm and carry on when the latest batch of employment figures are released. Traders are likely to keep very close tabs on the average earnings index to see if wage growth can keep spending supported.
This index is expected to advance from 2.3% to 2.4% for the three-month period ending in March, and a higher than expected rise could provide some assurance. Meanwhile, the claimant count change or the difference in the number of Brits claiming unemployment benefits from one month to the next is expected to show a 5.0K increase. This would mean another increase in joblessness but at a slower pace compared to the earlier 25.5K rise.
4. U.K. retail sales (May 18, 9:30 am GMT)
Last but certainly not least is the U.K. retail sales figure for April, which is expected to show a clearer picture of how the consumer sector has been faring.
After tanking by 1.8% in March due to lower purchase volumes across almost all sectors, a rebound of 1.2% is expected for April. However, it’s worth noting that downside momentum in consumer spending has been in play, leading the U.K. to chalk up its steepest quarterly fall in retail sales since 2010.
Aside from that, BOE Governor Carney just mentioned that “This will be a more challenging time for British households over the course of this year” and that “businesses are hesitating to bring in higher wage costs at a time of some uncertainty about market access and other costs that could be associated with the Brexit process.” Not exactly a sunny outlook, eh?
Then again, another way to look at it is that Carney already set the bar pretty low for consumer-related data so any upside surprise or even just a small bounce could be positive for the pound. After all, policymakers also pointed out that wage growth could eventually recover and that the output gap could narrow at some point.
As I always say, if you’re not comfortable trading around these event risks, there’s no shame in sitting on the sidelines and watching price action unfold. Be careful out there!