Morning Report: 6 July 2017

6th July 2017 By: Ranko Berich

GBP Worrying signs continued to emerge about the state of the economy yesterday, but sterling held up well and even managed to eke out marginal gains versus USD and EUR. The Services Purchasing Managers’ Index was 53.4 versus 53.8 previously and a median forecast of 53.5, a small miss that should be viewed in the context of this week’s other releases. Manufacturing and Construction PMIs also fell short of expectations earlier in the week, while Car Registration figures showed a 4.8% year on year drop in June. Vehicles are a big ticket purchase that consumers are likely to delay if their confidence in future incomes is low, and as such are a major leading factor for future consumer spending. We’ve already seen a significant slowdown in consumer spending in the UK, and the fall in vehicle sales suggests we may not yet be done. Today at 09:30 BST the Bank of England will release Housing Equity Withdrawal Statistics.

EUR The euro’s rally from last week and before appears to be running out of steam, and yesterday’s crop of good data prints did little to buoy the single currency further. European Purchasing Managers Indices for the services sector showed a strong level of reported growth across the continent, while Retail Sales grew 0.4% in May. German Factory Orders bounced back by 1.0% after a 2.2% decline previously, according to data releases this morning. At 09:10 BST Retail Purchasing Managers Index data will be released.

USD Although USD did close yesterday up on a broad basis, the release of the Federal Reserve’s latest meeting minutes did not provide a significant boost for the greenback despite being relatively hawkish. The minutes revealed that the rate-setting Federal Open Market Committee was nearing consensus about the necessity of reducing the Federal Reserve’s huge balance sheet, which has been inflated to historic highs by the asset purchasing programme known as quantitative easing. However there does seem to be division over how early and how steep the normalisation process should be, in light of the persistently low inflation that is dogging not only the United States but the developed world in general. The next few months of data are therefore crucial. If wages or inflation pick up again, the Fed is likely to keep faith in traditional economic models that suggest strongly an economy with very low unemployment and some modicum of growth will eventually produce the wage inflation that will drive consumer prices upwards, and tighten accordingly. Today at 13:15 BST the ADP estimate of Non-Farm Payrolls will be released, followed at 13:30 by weekly unemployment claims. Services Purchasing Managers Indices will be released by ISM and Markit at 14:45 and 15:00 respectively.

CAD The loonie pared back its gains slightly yesterday, having surged against USD earlier in the week. No Canadian data was released, but today at 13:30 BST monthly Trade Balance data will be released alongside Building Permits. At 16:00 North American Crude Oil inventory data will be released.

UK news

  • Guardian: Family of four needs ‘at least’ £40,800 a year, says thinktank. Rising inflation and less generous state benefits have made it harder over the past year for families on tight budgets to enjoy what the public considers a decent standard of living, according to one of Britain’s leading thinktanks. The Joseph Rowntree Foundation (JRF) said that despite an above-inflation increase in the “national living wage”, low-income families were falling further behind a minimum income standard.
  • Telegraph: Sir John Chilcot accuses Tony Blair of not being ‘straight with the nation’ over Iraq War. The chairman of the public inquiry into the 2003 conflict said the former prime minister had been “emotionally truthful” in his account of events leading up to the war.
  • Daily Mail: Millions of commuters facing 4% rise in rail fares because figure used to set annual increases in January is taken in the previous July. Millions of commuters face the biggest hike in rail fares for five years as the cost of living rises. The increase is expected to be almost four per cent, adding hundreds of pounds to the cost of many season tickets.