Market Review - Fundamental Perspective - 30 April 2018

In the UK, Preliminary Q1 GDP growth printed at 0.1% q/q versus consensus expectations of 0.3%q/q. Sterling weakened in response, with GBPUSD trading to a 2 month low of 1.3747 (Bloomberg) on Friday as market pricing for a May rate hike reduced from c.55% to c.24% this morning
Volatility in construction was estimated to be the main drag on growth and services were dragged down in February by temporary softness. Therefore, Barclays research believe “the release reveals little regarding whether the underlying trend has changed or not”
With activity data taking on increased importance, UK services PMIs on Thursday will be closely watched by markets
Despite the re-pricing of BoE hike expectations by the market, Barclays Research continue to expect the MPC to raise rates by 25bps on May 10th
GBP remains under pressure this morning on the back of political uncertainty after home secretary, Amber Rudd resigned as home secretary saying she "inadvertently misled" MPs over targets for removing illegal immigrants (BBC)
GBPUSD support is at 1.3750 short term, ahead of 1.3700 and 1.3660 with resistance at 1.3835 ahead of 1.3900 and 1.4000. EURGBP has broken above 0.8800, which opens up 0.8875-0.8900 ahead of previous range highs towards 0.9000-0.9050
Barclays Research sees further near-term USD potential upside as it re-correlates with rates. This reflects their “expectations that carry would reassert itself amid range-trading, less stretched valuations and broader returns to capital increasingly favouring the USD.”
US data and the May FOMC (Wed) are unlikely to deter the USD’s rally as significant fiscal stimulus should keep the economy above-trend for the next two years. Barclays research expect a 25bp hike in June and quarterly 25bp hikes through end-2019.

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