Central bankers cause eerie calm
UK second-quarter GDP growth was confirmed at 0.3% in the revised reading which was in line with consensus forecasts. A slight upward revision to production was offset by a downward revision to the construction sector with no change in services. There was no change in investment spending for the quarter which was slightly below consensus forecasts and maintained concerns surrounding underlying trends while mortgage approvals increased slightly.
The August CBI retail sales survey was notably weaker than expected with a reading of -10, down from 22 the previous month, which maintained expectations of weak consumer spending growth. Despite this, retailers are expecting a rebound for September.
There was no reassessment of the UK outlook following the data and caution ahead of next week’s Brexit negotiations, putting talks of a Bank of England rate hike on the back burner. Some covering of short Sterling positions was a feature after recent sharp losses. Sterling was unable to hold initial gains with the Euro rallying back from 1.0881 to close at 1.0845. The Pound held just above the 1.2800 level against the Dollar, with position adjustment and global trends likely to dominate on Friday.
The single currency is following the generalized lack of direction in the global markets, prompting EURUSD to meander within a narrow range around the 1.1800 handle while GBPEUR trades around the 1.0860 mark.
Markets remain subdued amidst rising anxiousness among investors over the speech by Mario Draghi, President of the European Central Bank (ECB), at the Jackson Hole Symposium later today.
Draghi is expected to lean on the dovish side as Euro strength has challenged the ECB in getting inflation higher and is causing some concern within the ECB, according to the minutes from the previous monetary policy committee meeting. He may refrain from giving any signals on tapering, as signalled by a recent Reuters’ story that quoted two ECB sources saying he would not be giving any new policy signals but await the tapering discussion in the ECB Council in the autumn.
The German IFO surveys for August are lined up for release later today and are expected to show dismal figures across all indicators. This could make it more difficult for the EURUSD pair to return to the highs we’ve seen in recent weeks.
US jobless claims rose only marginally to 234,000 yesterday for the latest week, below consensus forecasts, which sustained the firm sentiment in the labour market. Gains for the Dollar from jobless claims was negated, however, by existing home sales data that came in weaker than expected with an annual rate of 5.44mn for July. This was down from 5.51mn the previous month as a lack of inventory and concerns over affordability continued to hinder sales.
Kansas City Federal Reserve hawk President George continued to see an opportunity to raise interest rates again this year while Dallas head Kaplan was slightly more cautious. Kaplan did mention, however, he has not lost faith that inflation would get back to the 2% area. The effect of this was no significant shift in Fed Funds futures, with chances of a further interest rate increase before the end of 2017 projected at just above 40%, with further doubts whether tax reform would be passed through Congress.
Both Fed Chair Yellen and ECB President Draghi will be speaking today, although there
are doubts whether there will be any direct comments on monetary policy with the main focus for Yellen set to be on financial stability. That said, any comments out of line could see the markets react in a decisive manner.
Data to watch:
Jackson Hole Symposium
7:00am German Q2 GDP, Year on Year, Quarter on Quarter
9:00am German IFO – August Expectations, Current Assessment, Business Climate.
1:30pm US July Durable Goods Orders & DGO ex-Transportation
3:00pm Fed’s Yellen Speaks
6:00pm US Baker Hughes Oil Rig Count
8:00pm Mario Draghi Speech