UK retail sales produced another unexpected increase, following hot on the heels of positive inflation data, and provided firm support to Sterling despite political uncertainty. In the three months to July, retail sales rose by 0.5% and the Pound moved above 1.2100 on the Dollar and 1.0900 on the Euro. The main considerations for any further climb would be regional growth, Brexit and the interest rate outlook. Sterling retreated again on reports that the government would push ahead with an October 31st EU exit even if there was no deal, but there was support below 1.2100 on the Dollar.
Multiple media sources reported that circa 50 members of the Labour party are ready to join Tory rebels to stop a no-deal Brexit. The remain alliance seems united on one issue though; a less divisive politician than Jeremy Corbyn should become interim Prime Minister if a no-confidence vote creates a vacancy in Downing St.
Chinese authorities have signalled that they intend to apply retaliatory measures to nullify recent US trade tariffs. This may mean digging the toolkit to remote control a measured devaluation of the Yuan. It also means that there will be an intensification of global trade tensions. The market is hoping “constructive” talks between the two parties due in September yield more amicable results.
In the meantime, an inversion of the US Treasury curve, normally associated with a global economic recession, sent stock market indexes into a panic sell mode. Currency market watchers are seeing a shift in preference to traditional safe-havens.
University of Michigan's survey of consumer confidence will be in focus in particular after yesterday's strong retail sales number. The US consumer is one of the key forces holding up US growth amid weak investment growth.
The Euro risks extending its three-day losing streak against the Dollar as the US-German bond yield differential could widen on expected dovish European Central Bank (ECB) forecasts.
The currency was offered yesterday after one of its rate-setting committee members, Olli Rehn stated that the central bank's stimulus package could be bigger than expected. These comments seemed to solidify expectations that the ECB will look to counter recession fears with a much more aggressive easing stance. As a result, the German 10-year bond yield fell seven basis points to hit a record low of -0.71 and the spread between the US-and German 10-year bond yields rose by eight basis points.
As of writing the EUR/USD is currently trading at 1.11.
Data to watch
13.30 USD - Building Permits
15.00 USD - Prelim UoM Consumer Sentiment
Posted in Daily Market News on Aug 16 2019