Early Morning Call: GBP/USD near 1-year high ahead of BoE decision, Q1 GDP data

Equity market overview

Equity markets were mixed in Asia-Pacific overnight. Hong Kong’s Hang Seng underperformed as trade surplus in China widened to over $90 billion. Imports unexpectedly fell by nearly 8% year-on-year (YoY), and exports rose by 8.5%, after a 14.8% increase in March.

Retail sales growth in the UK held its pace in April according to the BRC. The consortium said spending at its members' stores rose by 5.1% YoY in annual terms last month. But with a UK consumer price index (CPI) growth stubbornly holding above 10%, this means the rise in sales value masked a sustained drop in sales volumes.

Helen Dickinson, the BRC's chief executive, said volumes fell for both food and non-food, adding "Clothing sales underperformed as the poor weather left customers thinking twice before decking out their summer wardrobe".

Separate data from Barclays, also published overnight, showed consumer spending on payment cards rose by 4.3% in April YoY.

The Halifax house price index unexpectedly fell by 0.3% in April month-on-month (MoM), after a 0.8% increase in March. The market had anticipated a 0.2% rise. Year-on-year, the index rose 0.1%, down from a 1.6% increase the previous month.

Currencies

The pound hit one-year highs against the US dollar yesterday. Many currency traders now consider that the greenback may have peaked, alongside Fed rates.

This week, a set of macroeconomic indicators are likely to have a great impact on the GBP/USD cross, starting tomorrow with consumer price index in the US. Economists expect the index at 5% in April YoY, the same pace of growth as in March. The pace of core CPI growth is forecast to slow to 5.5% YoY, from 5.6% the previous month. Anything higher than these expectations could force the US Federal Reserve to revise its latest stance on monetary policy.

BoE

On Thursday, the Bank of England (BoE) is set to decide on its interest rates. A majority of economists anticipate a 25-basis point (bp) hike that would take rates to 4.5%, a level not seen since October 2008.

And on Friday, we'll get the preliminary estimate of GDP growth rate in the UK for the first three months of the year. The market expects a 0.1% growth quarter-on-quarter (QoQ), equivalent to the one recorded for the last quarter of 2022, which confirmed that the UK economy had narrowly avoided recession.

Earnings

PayPal Holdings posted better-than-forecast earnings and sales last night after US market close. Yet, the stock fell by 5% as the fintech group cut its outlook. PayPal posted a profit of $1.17 per share on an adjusted basis, compared with 88 cents last year, and higher than the $1.10 anticipated. Revenue increased 10% to $7.04Bln.

But the group disappointed the market by cutting its adjusted operating margin forecast. It now sees a 100 basis point increase this year, compared with its earlier forecast of a 125-basis point growth. Lowering expenses has also always been a focal point for Paypal, and the group sees in artificial intelligence a strong ally for its future development. "We expect AI will enable us to meaningfully lower our costs for years to come," CEO Dan Schulman said, adding that "Paypal intends to use the technology to add features for both merchants and consumers on its platform".

We are now at the tailend of the US earnings season. Today, among the companies set to report, two stand out. Airbnb is scheduled to report after market close. Like other actors of the travel and tourism industry, Airbnb should have benefited from the strong growth in European travel as well as recovery in China. The Street forecasts earnings of 20 cents per share on revenue of $1.79Bln. During the same period a year ago, the group posted a loss of 3 cents per share on revenue of $1.51Bln.

Before that, Under Armour is set to report its quarterly figures around midday. Analysts forecast earnings of 15 cents per share on revenue of $1.36Bln. The same quarter a year ago, the group reported a loss of 1 cent. But more that top and bottom lines, inventories and margins are what really matters for investors. Three months ago despite earnings, sales and guidance being higher than anticipated, the stock fell on higher stocks and lower margins.