Global Market Watch - 24th July 2017
The main event for sterling last week was UK CPI, which surprised the market and came in lower than expected at 2.6% YoY. Although BoE Governor Carney later said that this data release didn’t broadly change the inflation scenario, sterling was under pressure for most of the week and especially against the Euro. This week the main economic data release will be advance GDP on Wednesday, with the market expecting +0.3%. If we get a better number than expected GBPUSD will take heart from this, however, against the Euro any bounce may not be so pronounced. Of course, if the data comes in worse than expected then the pound will probably slip. Continuing on the economic front recent research by Fathom Consulting (a well-respected City consultancy) has concluded that there is now a greater than evens chance of a technical recession in the U.K. over the next year.
ECB President Draghi didn’t say very much last week but it was enough for the market to buy the Euro. It all came down to his comment that there would be a QE tapering discussion in the ECB this autumn. This quite benign comment alongside his silence on the level of the EURUSD rate (Over the past two years the ECB has often tried to manage the price whenever it has been near 1.05 and 1.15) encouraged the market to buy Euros across the board. On the economic front important Flash PMI data is released Monday and German IFO is released on Tuesday, we also have French and German CPI released on Friday.
President Trump is still being very distracted by themes other than managing the USA and as such with the announcement that investigator Mueller is now going to make enquiries into Donald Trump’s business deals. He is not being seen by the markets as a positive for the greenback. Over the weekend President Trump announced that he has "complete power to pardon" and Wednesday could be important as Trump’s son is due to testify in congress regarding Russian links. US earnings continue to be released this week with already some 73% of companies beating expectations. The Fed meets on Wednesday but with no press conference to follow, recent weakish data it is expected to be a non-event.
The AUD has had a good two weeks, gaining some 5% against both the US Dollar and Sterling. It has been left to the RBA to put a stop to the markets fun; it warned that just because other central banks were hiking interest rates it doesn’t mean that they are. Q2 CPI on Wednesday accompanied by a speech by RBA Governor Lowe will be the main points for the AUD this week. The CAD did receive assistance in the shape of the Bank of Canada rate hike earlier this month and has continued to strengthen. It received some positive news last week on retail sales coming in at 0.6%, higher than the 0.3% expected. Canadian GDP will be released this Friday.