Stock markets in the red, Sterling down

Hi everyone,

 

Sterling was down 0.5% against the safe-haven currencies this morning after China posted concerning economic data, that has spooked traders. Industrial output and consumer spending in the country are at its worst levels since the covid pandemic began. China does seem to be easing lockdown conditions which is the reason for the poor figures, but with unemployment at a 2-year high also, it could take a while for the worlds second largest economy to recover. 

 

The market is also trying to weigh up how Russia may respond after both Finland and Sweden declared official interest in joining NATO. Tensions will undoubtedly be increased here and we await news of if Russia will respond. Global investor sentiment is clearly negative at the moment and all markets will remain choppy until recession fears are either eased or realised, the Russian war is over and inflation is steadied. 

 

Political tension is in the spotlight once again between the EU & UK, at a very precarious time for both. Prime Minister Johnson is holding meetings in Northern Ireland today about potentially dropping elements of the Northern Ireland protocol. The talk is that the Government will move ahead with its own legislation if the EU doesn't compromise. The EU will almost certainly respond with trade tariffs and so this headwind will remain in the spotlight for GBP.

 

ECB member Francois Villeroy expressed concern today that the 'Euro was too weak and is contributing to inflation'. €-$ rates are at the lowest level since 2017 and this currency pair is a driver of imported inflation due to energy costs. He added, "A euro that is too weak would go against our price stability objective". This adds credence to those expecting the ECB to raise interest rates this summer. 

 

After a surprising upswing for Sterling last week, it's a tricky week ahead both economically and politically for it to remain at current levels. We have key data released almost daily this week and so we expect vast swings in the market ahead. 

 

 
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