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17th October 2017

Sterling Rises As Potential 5-Year High Inflation Reading Eyed

Despite last night’s meeting between Theresa May and Jean Claude Juncker (and David Davis and Michel Barnier) producing nothing more than vague promise to ‘accelerate’ negotiations, the pound is on the rise this Tuesday.

That’s because investors are eagerly awaiting September’s inflation reading, which is set to see the consumer price index finally hit a 5 year high of 3.0%. Such a reading would put even more pressure on the Bank of England to raise rates, though that hawkish urge may be tempered by the continued fall in real wages (set to be confirmed tomorrow) and a sharp month-on-month drop in retail sales (coming on Thursday).

For now, however, the pound is focused on inflation. Cable is up 0.1%, though admittedly half a cent away from the $1.33 levels it was tickling on Monday morning, while against the euro sterling has climbed 0.3%.This, of course, prevented the FTSE from gaining any momentum of its own, with the UK index instead slipping back towards 7520.

Elsewhere the euro continued to struggle with the Catalonia uncertainty emanating from Spain, pairing its losses against the pound with a 0.2% drop against the dollar. The DAX dipped below 13000, while the IBEX remained flat after yesterday’s fall.

The region actually has a fair amount of data to deal with this Tuesday. Both the German and Eurozone-wide ZEW economic sentiment figures are forecast to push higher, to 20.1 and 34.2 respectively, while the region’s latest inflation reading is expected to be confirmed at 1.5%, back on the rise after a few months of decline and stagnation.

Eurozone Inflation Data Awaited As ECB Prepares QE Reduction

European equity markets are expected to open relatively flat on Tuesday, as we await some important inflation data from the UK and the eurozone, as well as appearances from Bank of England policy makers.

Will UK inflation data alleviate policy makers concerns?

It could be an important week for the UK as we get three economic reports that could strongly influence whether or not the BoE follows through with plans to raise interest rates for the first time since the global financial crisis. Policy makers have shown a desire to do so in recent months despite the outlook for the economy being far from encouraging.

The MPC is apparently growing increasingly concerned about persistent above target inflation, despite the fact that the one-off post-referendum currency devaluation has likely played a considerable role in this. If this is the case then we would expect annual measures of inflation to naturally correct themselves, which suggests policy makers are of the belief that the numbers go beyond these transitory factors.

Should the September CPI data remain elevated – as is expected – it’s unlikely to ease policy makers concerns, making a rate hike this year all the more likely. If the data falls short of expectations then those policy makers that remain on the fence – which appears to include Governor Mark Carney – may be inclined to await more data before committing to a rate hike, which could weigh on sterling and boost the FTSE.

Three BoE policy makers appear before Treasury Select Committee

Carney is due to appear before the Treasury Select Committee this morning so we could get his view on interest rates then. His new colleagues Sir David Ramsden and Silvana Tenreyro will also make an appearance earlier in the morning, which could provide important insight as none of the three have so far voted in favour of raising interest rates.

24th July 2017 – Brexit Uncertainty Still Bearing Down on the Pound

It’s likely that headlines will continue to move the GBP/EUR pairing as the UK is still having quite a bit of struggle coming to the consensus needed for an amicable divorce from the European Union.

Right now the marketing favours the EUR as the trading community believes that the European Union will be in a stronger economic position than Britain down the road. However, there are a lot of different things to happen between now and then, which will continue to put a lot of volatility into this market.

The general consensus is that the EUR will continue to advance against sterling over the next several months. In fact, longer-term there could even be a move towards parity although given the volatility yet to come, nothing is certain.

Economic Calendar (EUR/GBP)

MONDAY         

Eurozone:

Markit Composite PMI Flash JUL

Markit Manufacturing PMI Flash JUL

Markit Services PMI Flash JUL

TUESDAY

GBP:

30-Year Treasury Gilt

CBI Business Optimism Index Q3                     1

CBI Industrial Trends Orders JUL

WEDNESDAY

GBP:

GDP Growth Rate QoQ Prel Q2

GDP Growth Rate YoY Prel Q2

BBA Mortgage Approvals JUN

17th July 2017 – Too Soon to Buy the Pound

Regarding concerns over the near-term outlook for GBP/EUR, analyst Manuel Oliveri of Credit Agricole believes this week’s data docket poses a risk to Sterling.

Retails sales on Thursday and inflation data on Wednesday are tipped to be a key currency driver as they should further inform the whole Bank of England debate i.e. strong data = more of a likelihood of a 2017 interest rate rise.

“While it cannot be excluded that positive incoming data is making a case of even further rising central bank rate expectations to the benefit of the GBP, we believe that upside from the current levels is likely to prove limited,” says Oliveri.

“This is especially true as intact uncertainty as related to Brexit is likely to prevent the BoE from considering higher rates anytime soon, regardless of several central bankers less dovish stance. As such we advise against buying the GBP around the current levels,” adds the analyst.

 Economic Calendar (EUR/GBP)

 MONDAY         

Eurozone:

  • Core Inflation Rate YoY Final JUN
  • Inflation Rate YoY Final JUN
  • Inflation Rate MoM JUN

TUESDAY 

GBP:

  • Core Inflation Rate YoY JUN
  • PPI Input YoY JUN
  • PPI Input MoM JUN
  • Retail Price Index YoY JUN
  • Retail Price Index MoM JUN
  • Inflation Rate YoY JUN
  • Inflation Rate MoM JUN
  • PPI Output MoM JUN
  • PPI Output YoY JUN

WEDNESDAY

GBP:

  • Retail Sales ex Fuel MoM JUN
  • Retail Sales ex Fuel YoY JUN
  • Retail Sales MoM JUN
  • Retail Sales YoY JUN   

THURSDAY

Eurozone:

  • ECB Interest Rate Decision

Economic Data in Focus for the Week of 3rd July 2017 – The interest rate outlook changes dominate the Forex market

The greenback is still depressed versus GBP and EUR, after last week comments from BOE and ECB chiefs signalled shifting towards tighter monetary policy raising the costs of borrowing significantly last week in the secondary markets.

ECB president Draghi boosted demand from the single currency last week when he announced that the economic growth in EU is broadening although prudence in adjusting the monetary policy is still needed. 

GBP/USD soared too to be traded above 1.30 resistance level, after BoE Governor, Mark Carney commented that interest rate hikes would need to be introduced soon.

BOE’s MPC members have voted in their last meeting to leave the interest rate unchanged showing lower tolerance of watching the inflation level above its 2% yearly inflation target.

Economic Calendar

MONDAY

Eurozone:
Markit Manufacturing PMI Final June
Unemployment Rate May

GB:
Markit/CIPS Manufacturing PMI June

TUESDAY

GB:
Construction PMI June
BoE FPC Minutes

Eurozone:
PPI Year-on-Year

WEDNESDAY

GB:
New Car Sales Year-on-Year June
Markit/CIPS UK Services PMI

Eurozone:
Retails Sales Year-on-Year May
ECB Non-Monetary Policy Meeting

THURSDAY

Eurozone:
ECB Monetary Policy Meeting Accounts

FRIDAY

N/A

Economic Data in Focus for the Week of 26th June 2017

After last week’s investor confidence shakeup, this week’s US durable goods orders on Monday morning ET and consumer confidence readings on Tuesday morning should be in the spotlight. Weaker than expected readings could add additional perspective on whether the US economy is indeed slowing as many analysts have forecast.

As well, on Thursday we’ll be given some perspective on the world’s second largest economy, which has dramatic influence on the global economy – China PMI, released Thursday night EDT may shed more clarity on that country’s economy, after mixed readings in recent months.

Monday

4am EDT– German IFO business climate (June): expected to rise to 115.1 from 114.6. Markets to watch: eurozone indices, EUR crosses

8:30 EDT – US durable goods orders, Chicago Federal index (May): durable goods orders expected to fall 0.5% MoM from a 0.7% fall a month earlier, while the Chicago Federal index rises to 0.54 from 0.49. Markets to watch: US indices, USD crosses

Tuesday

10:00 EDT – US consumer confidence (June): expected to fall to 116.9 from 117.9. Markets to watch: US indices, USD crosses

Wednesday

10:00 EDT – US pending home sales (May): expected to rise from negative 1.3% to 0.5% MOM and 2% YoY. Markets to watch: US indices, USD crosses

10:30 EDT – US EIA crude inventories (w/e 23 June): stockpiles forecast to fall by 500,000 barrels, from a 2.451 million drop a week earlier. Markets to watch: Brent, WTI

Thursday

5:00 EDT – Eurozone business confidence (June): forecast to rise to 0.95 from 0.9. Markets to watch: Eurozone indices, EUR crosses

8:00 EDT – German CPI (June, preliminary): expected to rise 1.3%, after a 1.5% increase a month earlier. Market to watch: EUR crosses

8:30 EDT – US GDP growth (Q1, final), initial jobless claims (w/e 24 June): growth expected to be 1.2% QoQ, jobless claims expected to be 243K from 241K a week earlier. Markets to watch: US indices, USD crosses

Friday

3:55 EDT – Germany unemployment (June): rate expected to hold at 5.7%, while the number of unemployed falls by 10,600. Markets to watch: eurozone indices, EUR crosses

4:30 EDT – UK GDP (Q1, final): growth expected to remain steady at 0.2% QoQ and 2% YoY. Markets to watch: GBP crosses

The GBP/USD pair’s fall brings it back near to its uptrend line since the October Flash Crash, which increases the probability of a bounce along with the trend line, versus a further decline, which would constitute a reversal.

5:00 EDT – Eurozone CPI (June, flash): expected to be 1.2% from 1.4% YoY, while core CPI holds at 0.9%. Markets to watch: EUR crosses

Economic Data Week Commencing 19th June 2017

Data to Watch for the Pound
We see the prospect of a stronger Pound should the election outcome point to a softer-Brexit.

“The UK election outcome raises a potential for an alternative to the hard Brexit which was what PM May was seemingly pushing for,” says Viraj Patel at ING Bank N.V. “The loss of the Conservative seats has exposed vulnerability to the strategy PM May was pursuing and leaves her very vulnerable within her party. She now needs to accept a broader range of views within the party to secure a leadership.”

In terms of hard Brexit, which GBP crosses seems to be pricing in, it would be difficult to push it through the UK Parliament given the very fragile (potential) Conservative-DUP collation.

A busy week for the Pound kicks off with May Inflation data at 09.30 BST on Tuesday, which is expected to show a slower 0.2% rise compared to the 0.5% rise in April.

Employment data is out at 9.30 on Wednesday, June 14, and although the Unemployment Rate is forecast to remain at a very low 4.6%, it is the Average Earnings Statistic which will be the centre of attention given economists concerns about falling real earnings impacting on consumer spending.

The May Retail Sales release is out on Thursday Morning a 9.30, and is forecast to show a dramatic slow-down, and even a -0.8% contraction compared to the previous month rise of 2.3%.

The Bank of England (BOE) rate meeting is on Thursday at 12.00 but no change in policy or voting is expected, and arch-hawk Forbes will not be present.

Data to Watch for the Euro

The Euro may not trade particularly strongly this week so analysts will look to its counterparts for cues on direction.

The main release will be the ZEW survey of businesses which is regarded as a fairly accurate forward indicator of the economy; it is released at 10.00 BST on Tuesday, June 13.

Industrial Production and the Trade Balance are also out in the week ahead.

Last week’s European Central Bank (ECB) rate meeting was almost exactly as analysts had expected it – a nod to growth discounted by continued concerns over inflation.

This means the focus going ahead will be on data which informs the outlook for inflation.

Economic Data Week Commencing 12th June 2017

Monday

None

Tuesday

9.30am – UK CPI (May): expected to be 0.2% MoM and 2.5% YoY, from 0.5% and 2.7% YoY. Core CPI to hold at 2.4% YoY. Market to watch: GBP crosses

10am – German ZEW (June): economic sentiment to rise to 21.7 from 20.6. Markets to watch: eurozone indices, EUR crosses

1.30pm – US PPI (May): MoM PPI expected to be 0.1%, from 0.5% in April. Market to watch: USD crosses

Wednesday

9.30am – UK unemployment data: April unemployment rate expected to rise to 4.7% from 4.6%, while claimant count for May forecast to be 15,500, from 19,400 a month earlier. Average hourly earnings for April (inc bonus) expected to be 2.3% from 2.4%. Market to watch: GBP crosses

1.30pm – US CPI, retail sales (May): CPI expected to be 2.1% YoY and 0% MoM, from 2.2% and 0.2% respectively. Retail sales forecast to grow 0.3% MoM, from 0.4%. Markets to watch: US indices, USD crosses

7pm – Fed meeting (press conference 7.30pm): the committee is expected to raise rates to 1.25%, the second increase this year. Watch for the commentary around the decision, and whether more hikes will be coming later in the year, but also keep an eye out for discussion of the unwinding of QE, which was raised earlier this year. Market to watch: US indices, USD crosses

Thursday

9.30am – UK retail sales (May): forecast to rise 3.4% YoY and fall 1% MoM. Market to watch: GBP crosses

12pm – BoE rate decision & statement: no change on policy expected, although the BoE’s view on inflation could provoke volatility in sterling. Market to watch: GBP crosses

1.30pm – US initial jobless claims (w/e 10 June): claims expected to be 243K from 245K a week earlier. Markets to watch: US indices, USD crosses

Friday

10am – eurozone inflation (May, final): expected to be 1.4% YoY. Market to watch: EURUSD crosses

1.30pm – US housing starts & building permits (May): expected to see building permits rise to 1.25 million and 1.22 million for housing starts. Markets to watch: US indices, USD crosses

3pm – US Michigan consumer confidence (June, preliminary): forecast to fall to 96.9 from 97.1. Markets to watch: US indices, USD crosses

Economic Indicators Week Commencing 5th June 2017
Threat of Hung Parliament Looms over GBP
Fundamental Forecast for British Pound: Neutral

  • GBP/USD at risk of facing range-bound conditions ahead of the snap general election on June 8, amid the tightening race between the Conservative and Labour party.
  • The outcome of the election may derail the near-term recovery in the British Pound should Theresa May fail to establish a more unified government.
  • With ‘Brexit’ negotiations slated to start on June 19, a loss of confidence in the prime minister’s ability to deliver the UK out of the European Union (EU) is likely to drag on Sterling.
  • The Bank of England (BoE) may continue to endorse a wait-and-see approach at the next policy meeting on June 15, and Governor Mark Carney & Co. may tame interest-rate expectations throughout 2017 amid the uncertainty surrounding the U.K. economy.
  • The BoE may show a greater willingness to carry its policy stance into 2018 as officials now warn ‘consumption growth will be slower in the near term than previously anticipated.’
  • The diverging paths for monetary policy may continue to foster a long-term bearish forecast for GBP, particularly in its pairing with USD.