Brexit: Uncertain, Unpredictable, Unknown
Sterling stumbled against the US Dollar following new Foreign Secretary Jeremy Hunt’s comments that there is a very real risk of a Brexit ‘no deal’ by accident. Theresa May further reinforced his statement and said that “we are prepared for a no-deal Brexit”.
Sterling was mixed yesterday as the persistent Brexit negotiation stress and political uncertainty weigh on the Pound. The risk of a hard Brexit without a deal is a relentless source of weakness for the Pound and with the summer recess for the UK Parliament beginning today the issues will remain until at least September.
Andy Haldane, Bank of England Deputy Governor and Chief Economist, spoke last night about the unconventional monetary policy of the last decade, saying the once the Bank of England starts to unwind QE and the inflation falls, the Bank might need to cut rates.
There isn’t any tier one economic data due for release from the UK today.
The Euro is focusing on the European Central Bank (ECB) interest rate announcement on Thursday, where markets have priced in a less than a one percent chance of an interest rate hike. Any commentary from the ECB on the future of interest rates could have an immediate impact, but the current whip is everything holds until next summer.
The German economy witnessed an unexpected upturn in the month of July. The Bundesbank monthly report showed improved momentum for the second quarter with support from private consumption and manufacturing together as well as stronger exports.
The manufacturing purchasing managers index (PMI) rebounded this month, coming in at 57.3 while services PMI eased slightly to 54.4 versus 54.5 last month. The latest survey also signalled greater inflationary pressures in July, with both input and output prices rising more steeply in Germany.
The US Dollar continued to feel the effects of President Trump’s comments last week on the negative impact of a strong Dollar. However, the Greenback is showing modest gains versus most currencies heading into this morning.
US existing home sales fell 0.6% MoM in June below expectations, marking a third consecutive monthly decline. As has been the case for some time now, inventory shortages continue to plague the market for existing homes, worsening affordability and dampening sales. With the exception of residential construction, private investment has also increased considerably.
Foreign trade has contributed an estimated 1.5 percent to growth in the States, although this was partly due to exports of soybeans to China being pulled forward before tariffs were imposed. Growth should slow in the coming quarters though, not least because tighter monetary policy and the trade conflicts are likely to increasingly dampen the US economy. President Donald Trump stated he expected to get “something worked out” on NAFTA, and Mexican officials hoped to revive the trade talks at some point this week.
With regards to data, later in the US session, we are due to see Markit publish advanced readings of the manufacturing and services PMIs.
Data to watch
01:30 AUD RBA Meeting’s Minutes REPORT
09:30 GBP Claimant Count Change (Jun)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (May)
09:30 GBP ILO Unemployment Rate (3M) (May)
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (May)
14:15 USD Capacity Utilization (Jun)
14:15 USD Industrial Production (MoM) (Jun)
15:00 USD Fed’s Powell Speech
n/a NZD GDT Price Index