Trump & Terror Perturb Markets
The latest UK retail sales data was slightly stronger than expected with a 0.3% increase in volume for July after a downwardly-revised 0.3% gain the previous month. The small decline in non-food sales for the month was offset by a strong recovery in food sales. The underlying data still pointed to lacklustre spending with annual growth held to 1.3% and Sterling was unable to sustain an initial advance, with further resistance above 1.2900 against the Dollar.
The Pound climbed 0.3% against the Euro to 1.1023 as figures showed retail sales ex-fuel had risen 1.5% in the year to July, compared with expectations of 1.3%. However, that was a drop from 2.8% in June.
US initial jobless claims declined to 232,000 yesterday from 244,000 previously. This exceeded expectations, coming in below the consensus of 240,000, and was the lowest figure for over three months, maintaining strong confidence in the labour market.
Further, the Philly Fed manufacturing index declined slightly to 18.9 from 19.5 previously, yet was above expectations as the data remains strong in historic terms. This index highlighted increasing inflationary pressures and a net strengthening in US growth conditions.
During New York trading, unsettling rumours that Cohn had resigned as Director of the National Economic Council spread weighing on the Dollar. Skepticism of Trump’s ability to deliver on his economic agenda and risk sentiment deteriorated further after the terrorist attack in Barcelona.
Today, the FOMC Member Kaplan’s Speech and the Baker Hughes US Oil Rig Count occur. Member Kaplan, as president and CEO of the Federal Reserve Bank of Dallas, oversees the 1,200 employees of the Dallas Fed. The Oil Rig Count provides an important business barometer for the drilling industry and its suppliers.
Minutes from July’s European Central Bank (ECB) policy meeting indicated that members were concerned for an overshoot in bond yields and especially the Euro. Further caution over moves to scale back monetary policy support was also mentioned, yet there was optimism that inflation would gradually return to target. The rhetoric pushed the Euro sharply lower to below 1.1670 against the Dollar, whilst it ended the day at 1.0988 against the Pound.
The tone of the minutes suggests that the ECB will indeed be cautious about the way it will communicate any future policy moves. The dovish rhetoric in relation to Quantitative Easing tapering being the most likely option demonstrates that the ECB is not entirely ready to begin its normalisation of policy.
Data To Watch:
7:00am EUR Producer Price Index (MoM)(YoY) (Jul)
3:15pm USD FOMC Member Kaplan Speech
6:00pm USD Baker Hughes US Oil Rig Count