Good morning,
In the latest twist in the world of streaming controversies, a Scottish woman, Fiona Harvey, is suing Netflix for defamation and privacy violations. She alleges the streaming giant falsely depicted her as a convicted stalker in the hit series Baby Reindeer. Harvey is seeking a staggering $170 million in damages, claiming Netflix broadcast “brutal lies” to millions of viewers. Netflix, however, stands by its show and promises a vigorous defence. This legal battle is shaping up to be as dramatic as the series itself—stay tuned for the next episode!
Last Week
The European Central Bank made its first rate cut in five years last week, reducing the headline rate from 4% to 3.75%. This move, which was largely anticipated, aims to ease borrowing costs and boost consumer confidence across the Eurozone. The euro remained steady, with ECB President Christine Lagarde’s cautious approach being termed a “pragmatic, precautionary move” by some investment banks. This suggests a rapid easing cycle is unlikely, supporting the euro for now. Meanwhile, sterling climbed higher, with GBP/EUR reaching 1.1784, driven by strong UK inflation data and a lack of Bank of England commentary due to pre-election purdah. Given the diverging stances of the respective Central Banks, the pound may continue its upward trend.
The US had a mixed week with economic data influencing the dollar’s movement. The week started poorly with weak Manufacturing PMIs, sparking recession fears. These concerns were eased by robust services data mid-week, which plays a larger role in the US economy. However, Friday’s bumper Non-Farm Payrolls (NFP) report turned the tide, with the dollar rallying, closing the week up across the board. Futures pricing now shows markets favour no cuts until November now which puts the Fed firmly at the back of the rate cut queue. Considering the dollar is trading at a discount at present, we could be in line to see an extended period of strength for the greenback.
Prime Minister Rishi Sunak’s re-election campaign faced significant challenges last week. On Monday, Nigel Farage took over the leadership of Reform UK, potentially drawing away Conservative voters, and a new poll suggested Labour could secure the largest majority in a century. Despite these setbacks, Sunak won the first televised debate against Labour leader Sir Keir Starmer by a narrow 51-49 margin, according to a YouGov poll. Sunak promised tax cuts, pension protection, and reduced immigration while criticising Labour’s tax plans. Analysts suggest a Labour victory could boost the undervalued Pound Sterling by improving EU relations and reducing Brexit uncertainties. Whilst at the same time the Bank of England should be in line to begin cutting rates, providing stimulation to an ailing economy.
This Week
US inflation resumed its downtrend in April, and May’s disappointing ISM manufacturing PMI has bolstered investor expectations that the Federal Reserve will lower interest rates this year. Markets had been pricing an 80% probability for the first one in September, however last week’s NFP print seen this flip back in favour of a hold. Traders are now keenly eyeing next week’s FOMC decision, which includes updated economic projections and a new dot plot. While most policymakers are not in a rush to lower borrowing costs, an upward revision in rate projections could occur. However, only signalling one quarter-point reduction for 2024 might be necessary to significantly lift the dollar. Wednesday’s CPI data release could also influence market sentiment ahead of the Fed’s announcement.
The pound is set for a volatile week as key UK employment and GDP data for April are released on Tuesday and Wednesday, respectively. Recent hotter-than-expected inflation numbers, particularly stubborn underlying price pressures, have led investors to scale back expectations of Bank of England rate cuts. Currently, markets are pricing in around 40 basis points of rate reductions by December, with a 65% chance of a first quarter-point cut in September. Strong wage growth and solid GDP data could reduce the likelihood of a September cut, supporting the pound. However, with general elections on July 4, traders may proceed cautiously, especially as Labour’s fiscal responsibility stance might influence BoE policy towards earlier rate cuts.
Key Events
Tuesday 11th June
07:00 UK Claimant Count Change
Wednesday 11th June
07:00 UK GDP
13:30 US US CPI
19:00 US Fed Reserve Rate
19:30 FOMC Press Conference
20:15 BOC Gov Macklem Speaks
Thursday 13th June
02:30 Australian Unemployment Rate
13:30 US Core PPI & Unemployment Claims
Friday 14th June
15:00 US Prelim Consumer Sentiment
Tentative BOJ Policy Statement
Have a great week,
The Garton team.