Summer bargains discount Autumn rate hike
Sterling fell further yesterday morning on a woeful set of sales data, well below consensus forecasts. The UK retail sales slumped -0.5% MoM, as clothing and computer games were discounted in summer sales. Core retail sales, excluding motor fuel sales, fell -0.6% MoM in June. The disappointment comes a day after softer inflation figures have dented prospects for an August rate hike move and prompted some fresh selling around the already weaker British Pound. Despite this, interest rate markets are still pricing a 70% chance of a rate hike at the Bank of England’s August meeting.
The Pound fell through the key 1.3000 level yesterday, printing new 10-month lows of 1.2958 and the Euro peaked at 1.1170.
Today’s UK public sector net borrowing completes a data-heavy week, with net borrowing expected to reach £3.6 billion in June.
European currencies initially remained out of favour during Thursday, with a lack of bond yield support and trade fears. The EU stated that it was considering retaliation with 20% tariffs on US cars if the US Administration pushes ahead with trade sanctions.
A Bank of France study reported a trade war could knock 3% off global GDP. The IMF warns that the Eurozone growth risks are serious and could lead to a hard landing. Adding to that, a no-deal Brexit would cost the European Union 1.5% of GDP.
Today, German PPI is set to rise by 0.2% MoM in June, while increasing 2.9% YoY. Also in the docket, the Eurozone’s Current Account for May.
The greenback, towards the end of a very good day yesterday, lost its upside momentum and reversed most of its early gains after the US President Donald Trump criticised Fed interest-rate policy. Trump expressed displeasure at the Fed’s monetary tightening, saying that he was worried about its potential impact on the US economy, and also raised concerns about the recent USD strength. US stocks declined yesterday, led by bank stocks, and US Treasuries rallied, after President Trump expressed his discontent about the Fed’s hiking cycle and the strong USD. The White House clarified afterwards that the president ‘respects the independence of the Fed’ and that these comments were merely a reiteration of long-held views.
Strong US Dollar buying interest, further supported by stellar weekly jobless claims data and the Philly Fed Manufacturing Index, moved the greenback higher across the board in the early session. Today, the calendar in the US is very thin. Markets will make a second reading of the Trump comments trying to assess what it really means for the dollar.
Data to watch:
All Day USD OPEC meeting
05:30 JPY All Industry Activity Index (MoM) (May)
09:30 GBP Public Sector Net Borrowing (Jun)
13:30 CAD Retail Sales ex Autos (MoM) (Apr)
13:30 CAD Retail Sales ex Autos (MoM) (May)
13:30 CAD Retail Sales (MoM) (May)
13:30 CAD Consumer Price Index (MoM) (Jun)
13:30 CAD Bank of Canada Consumer Price Index Core (MoM) (Jun)
13:30 CAD Bank of Canada Consumer Price Index Core (YoY) (Jun)
13:30 CAD Consumer Price Index – Core (MoM) (Jun)
13:30 CAD Consumer Price Index (YoY) (Jun)
18:00 USD Baker Hughes US Oil Rig Count