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US Inflation, key to interest rate path

US Inflation, key to interest rate path

UK unemployment remained at 3.8%, as forecasted but the jobless claimant count printer slightly higher than forecast and employment growth slowed. Headline average earnings beat forecasts but slowed to 3.1% from 3.3%, and average earnings excluding bonus’ edged up to 3.4% from 3.3%. The positive earnings data increased speculation of a Bank of England (BoE) interest rate hike. BoE Deputy Governor, Ben Broadbent stated that interest rates were likely to move higher over the medium term. MPC member Gertan Vlieghe was less upbeat stating that data since May had been disappointing and that downside risks had intensified. The wages data provided underlying support and the Pound made some ground on its peers, especially in light of very dovish (rate cuts) central bank policies elsewhere.

The Labour Party tabled a cross-party motion to prevent a no deal Brexit in the UK, which if passed would likely raise tensions to the point of a general election. Given a backdrop of the Tory leadership contest, where hard-Brexit supporters will likely succeed in the first ballot, the market is in wait and see mode. Sterling opens near 1.2730 against the Dollar and 1.1230 on the Euro. No tier-one data for the UK so attention will be on Mario Draghi’s speech and US Inflation data.


The US Dollar Index (DXY), which gauges the greenback vs. a number of its main competitors, is trading pretty flat this Wednesday morning. The index has moved lower following Friday’s sharp sell-off, always against the backdrop of increasing speculations over the probable rate cuts by the Federal Reserve (Fed) and persistent trade concerns.

Cautiousness around the US-China trade dispute has been gaining ground as of late amidst rumours citing another potential meeting between President Trump and his Chinese peer, Xi Jinping, at the next G20 meeting in Japan later in the month. Producer Prices published yesterday confirmed the absence of upside traction and somehow lent wings to the idea that the Fed could move on rates to the downside in the next months, all weighing further on the buck.

Later today, US inflation figures measured by the CPI will be the salient event seconded by a ten-year note auction and the EIA report on crude oil supplies.


Sentix Eurozone investor confidence index declined to -3.3 for June, a significant drop from May’s 5.3 and below forecasts. German bond yields declined during the day, testing record lows which weighed on support for the Euro. Overall, the Euro traded in narrow ranges against the Dollar and Pound and the sharp rise in Italian bond yields late on had little impact. The Euro opens at 1.1335 against the Dollar and the market awaits Mario Draghi’s speech for more on the next Quantitative Easing program.


Data to watch:

00:30 AUD Westpac Consumer Confidence (Jun)
01:30 CNY Consumer Price Index (MoM) (May)
01:30 CNY Producer Price Index (YoY) (May)
01:30 CNY Consumer Price Index (YoY) (May)
08:15 EUR ECB’s President Draghi speech
09:00 EUR ECB’s De Guindos speech
09:00 AUD RBA’s Ellis speech
N/A EUR 10-y Bond Auction
12:30 USD Consumer Price Index ex Food & Energy (MoM) (May)
12:30 USD Consumer Price Index ex Food & Energy (YoY) (May)
12:30 USD Consumer Price Index (YoY) (May)
12:30 USD Consumer Price Index (MoM) (May)
12:30 USD Consumer Price Index Core s.a (May)
14:15 EUR ECB’s Coeure speech
15:00 EUR ECB’s Coeure speech
18:00 USD Monthly Budget Statement (May)
23:50 JPY Foreign Investment in Japan Stocks (Jun 7) 

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