News & analysis

GBP

Sterling closed at a fresh 2019 low yesterday as the BRC Retail Sales Monitor highlighted that the Q2 slowdown is spread over multiple sections of the UK economy, and the bearish sentiment surrounding the pound continues today. In Brexit, the buzz word is ‘disruptive’. That’s not just the choice adjective to describe the impact of a no-deal exit on supply chains and the UK economy, but aptly describes Boris Johnson’s performance last night on ITV during the last televised leadership debate. Boris painted himself in an uncooperative and bolshy manner and even spoke over the mediator Julie Etchingham at one point, leading many to attribute Hunt as the victor. Despite the result, the event proved to be somewhat entertaining – albeit perhaps embarrassing externally for UK politics. The event took a Wimbledon-esque theme of aggressive attacks and well-timed retorts, but the result in itself is unlikely to sway the Conservative membership as Hunt danced around the October deadline compared to Boris’ bullish stance. The political drama wasn’t isolated to the ITV studios in Salford last night, as back in Westminster MPs voted on Grieve’s set of amendments. The publicised amendment to stop the future PM proroguing Parliament to force a no-deal was rejected, however, one of the alternative adjustments sneaked through by a margin of 1. The Sun’s Steve Hawkes reports that the government only lost this vote because one of its whips was in the toilet – sums it all up really. However, the amendment to the Northern Ireland Bill to require ministers to regularly report on the situation in Northern Ireland supposedly makes it harder for the PM to force a no-deal. Today, the data calendar takes the reigns and will likely add the finishing touches to a bleak picture of the UK economy. Expectations for May’s GDP release are low, with a 0.1% QoQ reading expected, but the recent data suggests this could be a stretch.

EUR

Fresh three week lows were on the menu for EURUSD yesterday as markets await Federal Reserve Chair Jerome Powell’s bi-annual testimony to the House and Senate in the US today and tomorrow. Italian May Retail Sales contained signs that consumer spending in the Eurozone is showing cracks as it fell by 0.7% on the month after disappointing German readings earlier. Meanwhile, for those who missed it, Monday saw a successful Italian bond auction of sovereign debt with a maturity of 50 years at 2.85%. This demonstrates to somehow distorted European debt markets currently are by the presence of the European Central Bank, which many expect will increase now the ECB is moving into even more dovish waters after softness in recent economic data. Today we have the Wimbledon men’s quarterfinals and the Tour de France route that goes from Saint Dié-des-Vosges to Colmar, which may overshadow the Italian and French Industrial Production figures released at 8:45 BST and 9:00 respectively.

USD

The US dollar extended its rally yesterday as trader’s continued to trim expectations of a deep Fed cutting cycle. Today proves pivotal for the dollar as Governor Powell testifies to the House Committee on Financial Services in a semi-annual report on monetary policy. If the governor plans to calm the market’s expectations for a rate cut at the end of the month, now is the right time before the pre-FOMC period of silence begins. US yields have risen in anticipation of a more reluctant Powell over the last few days, with expectations of a 50 basis point cut on July 31st falling from 25% to 1.5% over the last week. The NonFarm Payroll release didn’t show the anticipated downturn in the US economy that many expected, and Powell may lean on the positive surprise to reinforce that the slump in inflationary pressures is transitory. All that we do know, for now, is that Powell is up at 15:00 BST and the potential is there for an explosive afternoon in markets.

CAD

It’s Bank of Canada day, and fittingly the event clashes with Powell’s testimony. With two loaded events for USDCAD in this afternoon’s session, volatility is almost guaranteed. The recent uptick in the data supports Governor Poloz’s neutral stance and outlook that the economic slump in Q4 2018 and Q1 was transitory. Should Powell trim market expectations, the neutral stance by Poloz will hold the loonie in good stead during a bout of broad greenback strength. However, in the likely eventuality that Powell provides no forward guidance on policy, the loonie could be set to make substantial gains as a neutral Poloz looks hawkish in an increasingly accommodative global environment.