Barnier’s Optimism Supporting Sterling
UK Net Lending to Individuals dropped sharply in July, well below consensus forecasts, with only £4.0bn growth against June’s £5.4bn increase. July’s Consumer Credit also printed well below forecasts of £1.5bn, mustering a paltry £817m. The Pound dipped slightly on reduced expectations of the consumer spending outlook.
EU Chief Negotiator Barnier’s slightly more cautious rhetoric dampened Sterling optimism slightly, but Wednesday’s pledge of a bespoke post-Brexit UK deal kept Pound sentiment positive. Sterling traded around the 1.3000 mark against the Dollar whilst the Euro slipped into the 1.1160 area before correcting slightly.
Overnight, UK Consumer Confidence improved marginally on last month’s figure. Market focus today will be on the talks between UK Brexit Secretary Raab and EU Chief Negotiator Barnier. As it is month-end, there is the potential for sharp moves on month-end position adjustment. Sterling opens at 1.3016 against the Dollar and 1.1148 against the Euro.
The US Dollar edged lower yesterday as concerns eased around trade conflicts and investors looked to riskier currencies. The Dollar fell lower for the fifth consecutive day. Trump reiterated his desire to slap tariffs on China “as soon as possible.” The US has imposed tariffs on $50 billion worth of Chinese imports so far, and yesterday reports surfaced that President Trump wanted to push ahead with tariffs on an additional $200bn, and threatened to leave the WTO.
The US and Canada continue intense negotiations in Washington to cut a NAFTA deal. There has been no progress so far, with Canada’s Freeland aiming to “get the right deal.” Other reports suggest a deal is imminent. The deadline is today, but it may be pushed back.
The Core Price Index came out at 2% YoY as expected. Personal Spending, Personal Income, and other figures met expectations as well. Trump also threatened to pull out of the World Trade Organization and blamed the EU for trade practices.
Later today across the pond, we see the Chicago PMI due as we enter the the American session.
A decline in Italian bonds and fresh worries over Turkey contributed to a cooling off of the Euro against the Sterling and the Dollar. Against the Dollar, the Euro held at around 1.1650 late in the Thursday session, but has since recovered slightly this morning due to ECB Member Nowotny saying the bank needs to focus on the deposit rate and getting it out of negative territory.
Data wise yesterday, German unemployment fell and CPI data hit consensus with a year-on-year rate of 2%. Eurozone economic sentiment for August came in below consensus, particularly in services-sector confidence.
Friday’s economic data consists of German retail sales, UK housing prices, French CPI figures, Spanish retail sales, Italian unemployment and GDP figures with EU CPI figures rounding off the day. Despite all this data to come, the main source for volatility will be the EU CPI figures, however market consensus is that the figures will remain the same as before.
Data to watch:
07:00 GER Retail Sales (MoM) (Jul)
10:00 EUR Unemployment Rate (Jul)
10:00 EUR Consumer Price Index – Core (YoY) (Aug)
10:00 EUR Consumer Price Index (MoM) (Aug)
10:00 EUR Consumer Price Index – Core (MoM) (Aug)
10:00 EUR Consumer Price Index (YoY) (Aug)
11:00 ITA Gross Domestic Product (YoY) (Q2)
11:00 ITA Gross Domestic Product (QoQ) (Q2)
14:45 USD Chicago Purchasing Managers’ Index (Aug)
18:00 USD Baker Hughes US Oil Rig Count
23:30 AUD AiG Performance of Mfg Index (Aug)