Morning Report: 24 July 2017

24th July 2017 By: Ranko Berich

GBP Sterling weakened against both USD and EUR last week, but managed to put up some modicum of resistance against the greenback towards the end of the week, including Friday. This will be a quiet week for the pound, apart from one headline release in the form of Preliminary Gross Domestic Product data for the second quarter on Wednesday. The Monetary Policy Committee’s Chief Economist and provocateur in chief, Andy Haldane, will speak on Tuesday in London. Although the topic of the speech is not directly monetary policy, after Haldane recently made comments in favour of near term rate hikes the potential for sterling relevant comments should not be discounted.

EUR The euro found little if any resistance among G10 currencies last week, and made significant advances against both USD and GBP. EURUSD is now within spitting distance of its highest level since early 2015, when the ECB first began large scale quantitative easing. This will be a busy week of euro data, which has already begun with the release of French Manufacturing and Services Purchasing Managers Indices. Both the PMIs showed a strong level of activity growth. The equivalent European indices showed a slight slowdown, yet very strong reading, for the manufacturing PMI, and a solid release for the services PMI. Later in the week, A raft of GDP and inflation figures will be released for French, Germany and Spain on Friday.

USD USD was already selling off before the latest intensification of political turmoil, but last week’s news that special counsel Robert Mueller was expanding his investigation into the Trump Administration’s contacts with Russia appeared to once again worsen the prevailing bearish mood for USD. Today Trump’s son in law Jared Kushner will meet behind closed doors with the Senate Intelligence Committee, which has also taken an active interest in Russian interference with the US electoral process. This will be a busy week for the US data calendar, which may provide some relief (or damnation) for USD. Today at 14:45 BST Markit Purchasing Managers Indices for Services and Manufacturing will be released, followed by the latest FOMC decision on Wednesday night, where no change is expected to monetary policy or forward guidance. Durable Goods orders will be released on Thursday, followed by Gross Domestic Product data on Friday.

CAD Firm Retail Sales data on Friday were the icing on the loonie’s cake last week, triggering further appreciation against the battered US dollar. Headline Retail Sales rose 0.6% to hit a record for total nominal value, although the headline Consumer Price Index fell to the lowest rate of year on year inflation since 2015. Today at 13:30 BST Wholesale Sales will be released, followed on Friday by monthly Gross Domestic Product data.

UK news

  • FT: IMF lowers UK GDP forecast to 1.7% amid Brexit uncertainty. Britain suffers biggest downgrade for advanced economy in latest forecasts by fund. The International Monetary Fund has downgraded its forecast for Britain’s economy, describing its recent performance as “tepid”. In a summer update to its twice yearly forecasts, the fund said the UK economy was slowing and likely to grow only 1.7 per cent this year, down 0.3 percentage points from its forecast in April. In contrast, the eurozone is expected to outperform the UK this year, growing 1.9 per cent, the IMF said. But it cut its forecast for the US to 2.1 per cent for this year and next. The IMF upgraded its forecasts for the growth of the world economy to 3.5 per cent this year and 3.6 per cent in 2018, both up from 3.2 per cent last year.
  • Reuters: Inflation hits UK public finances in June, adding to Hammond’s headache. Britain’s budget deficit came in wider than expected in June as higher inflation since the Brexit vote forced the government to pay more interest on its debt, driving home the challenge facing Chancellor Philip Hammond. The deficit in June stood at 6.854 billion pounds, up 43 percent compared with the same month last year, the Office for National Statistics said on Friday, citing figures that exclude state-controlled banks. The shortfall for June was much bigger than a median forecast of 4.8 billion pounds in a Reuters poll of economists. In the first three months of the financial year, the budget deficit widened by 8.9 percent compared with the same period in 2016 to 22.8 billion pounds, the ONS said.