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Trade fears now trade hopes

Trade fears now trade hopes

GBP
UK mortgage lending printed 40,500 in June, which just beat forecasts and is the strongest reading for 8 months. CBI retail sales also beat consensus forecasts as retailers continued to report that recent weather was shining on the high street, although sales are expected to fade in August.

 

Next week’s Bank of England policy decision shields Sterling from selling with strong market expectations that rates would be increased by 0.25%. Political concerns have eased slightly amid optimism that an acceptable Brexit deal was more likely to be achieved now that Prime Minister May will spearhead negotiations.

 

The Euro retreated to lows near 1.1270 before a slight recovery, while the Pound advanced on the Dollar, testing resistance at 1.3200. European currencies have gained on an easing of trade fears following the EU/US meeting.

 

USD

 

US President Donald Trump and European Commission President Jean-Claude Juncker announced yesterday that the Eurozone and the US will launch a new round of trade negotiations. Both sides appeared to be willing to avert a trade war, though specific details remain light and specific plans of action are yet to materialize.

 

Trump’s aim amidst the tariff war is to restrict German exports into the U.S. market and encourage German car companies to move production facilities and jobs to the States. Yesterday’s news of possible further tariffs of up to 25 percent on foreign-made automobiles will no doubt alarm Germans. Trump has also sought to use the threat of tariffs and sanctions to force European countries to increase their military spending as well as to pressure Germany into supporting sanctions against Iran.  

 

New home supply at the current sales pace increased to 5.7 months in June, up from 5.3 in May, but the increase was largely attributable to the lower sales pace.

 

Across the pond today, we see the weekly report on the US labour market is due, seconded by Durable Goods Orders and Trade Balance figures.

 

EUR

 

In what was a big day for the EU, Trump’s meeting with Juncker seemed to go well, with the two parties agreeing to lower trade barriers in what was described as a “new phase” in relations. The final goal of zero tariffs seems viable and they also agreed to increase trade in services and agriculture as well as increasing subsidies on non-auto industrial goods.

 

The Euro remained solid throughout the day, regaining the 1.1700 handle vs the Dollar as the news broke that a trade war was averted. This morning, Asian stocks have edged higher normally leading to positivity in Europe, but there is a sense of caution before the ECB meeting.  

 

The ECB’s monetary policy meeting dominates the economic calendar today, with Mario Draghi expected to maintain the status quo following the announcement last month of a tapering off of QE. Draghi already stated no policy move until next summer, but many analysts want to know what his definition of summer is. His press conference afterwards is expected to generate more volatility that the interest rate decision.

 

Data to watch:

24h       USD OPEC meeting

07:00    EUR Gfk Consumer Confidence Survey (Aug)

12:45    EUR ECB Deposit Rate Decision

12:45    EUR ECB Interest Rate Decision

13:30    USD Continuing Jobless Claims (Jul 9)

13:30    USD Initial Jobless Claims (Jul 16)

13:30    EUR ECB Monetary policy statement and press conference

13:30    USD Durable Goods Orders ex Transportation (Jun)

13:30    USD Durable Goods Orders (Jun)

 

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