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Almost…Chaos in the Commons

Almost…Chaos in the Commons

GBP 
The Pound climbed higher yesterday as data generated confidence of a tight labour market, but selling pressure ramped up after lunchtime amid expectations that the government would lose a House of Commons Brexit vote.

UK unemployment held steady at 4.2% in the 3 months to May but the unemployment claimant count increased 7,800. Employment gains fell short of consensus forecasts but vacancies hit a record high. However, the key data, Average Earnings, retreated to 2.5% from an upwardly-revised 2.6% with underlying earnings at 2.7% from 2.8%.

Mark Carney’s reiteration that a ‘no Brexit deal’ would be a material consideration for the Bank of England interest rate curbed support for the Pound. From highs near 1.3270, there were sharp losses as the Dollar gained support. As speculation over a Commons defeat intensified, Sterling fell to 1.3100 against the Dollar.

Last night’s votes demonstrated that hard Brexit Conservatives have the numbers to swing the government’s Brexit strategy, in contrast to those in favour of ‘remaining’ who have lost or withdrawn some of their key amendments. Generally speaking, it shows that Parliament has the numbers to pass a harder rather than softer form of Brexit.

Although there was a sharp rally after the government avoided defeat in the key vote, gains faded quickly amid fears that the underlying position remained chaotic, with The Prime Minister still extremely vulnerable.

EUR

EURUSD failed to maintain its ground and is slowly sliding below the 1.17 handle, currently down at 1.1640 at the time of writing.

There was no data out of the Eurozone yesterday, with the EURUSD pair being driven mainly by USD dynamics and cross-currency trades.

The European Union did sign a free trade agreement with Japan, in a move also seen as a rebuff to American protectionism. The impact is more political than practical and the deal may take years to ratify in Europe’s national and regional parliaments.

The Eurozone will release the final inflation figures for June today. The preliminary data showed a divergence between the headline and core inflation. Rising oil prices pushed the topline Consumer Price Index (CPI) to 2% YoY while underlying Core CPI remains stuck at 1%. The final figures are projected to confirm the initial read.

USD

Yesterday saw a sharp move higher for the US Dollar, boosted by the outlook for the US economy presented by the US Federal Reserve (FED) chairman Powell in Congress as well as by Kansas City Fed President George. Both officials expect the US economy to remain strong, with employment and inflation rising that justifies the gradual monetary policy normalization, with rates going higher.

Powell was very bullish on the economy. He expressed satisfaction with growth, which is set to be higher in Q2 after an adequate Q1. The Fed Chair also talked about how the improving job market is reaching different types of people in the US and was very confident about inflation. He continued conveying the message of raising rates gradually.

US President Donald Trump backtracked on his Helsinki press conference comments regarding Russian meddling in the US elections, but the new statement – and the old one – did not have an impact on markets, which are more interested in Trump’s policies on trade.

The main event of the day is the same as yesterday: Powell’s testimony. This time, he will appear in front of a House Committee. The opening statement will be identical to Tuesday’s, leaving the focus on the lengthy Q&A session. Less caution on the hot topic of trade may rock markets.

Data to watch:

All day EUR EcoFin Meeting
09:30 GBP Retail Price Index (YoY) (Jun)
09:30 GBP Retail Price Index (MoM) (Jun)
09:30 GBP Consumer Price Index (MoM) (Jun)
09:30 GBP Consumer Price Index (YoY) (Jun)
09:30 GBP Core Consumer Price Index (YoY) (Jun)
10:00 EUR Consumer Price Index – Core (MoM) (Jun)
10:00 EUR Consumer Price Index (YoY) (Jun)
10:00 EUR Consumer Price Index (MoM) (Jun)
10:00 EUR Consumer Price Index – Core (YoY) (Jun)
13:30 USD Housing Starts (MoM) (Jun)
13:30 USD Building Permits (MoM) (Jun)
15:00 USD Fed’s Powell Speech
19:00 USD Fed’s Beige Book

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