Investors Step Aside Ahead of Critical Central Bank Events
What’s been happening?
Pound Sterling – UK Markets
The pound stayed virtually unchanged against the dollar and the euro on the last day of the week as investors refrained from making large bets ahead of the critical
Bank of England meeting, at which the bank is expected to hike the policy rate by 25 basis points, later this week.
On Friday, The Times revealed the results of a YouGov poll that was conducted on Wednesday and Thursday. According to the report, “asked whether there should be a referendum on the final terms of any Brexit deal, 42 percent said there should be a fresh vote while 40 percent said there should not. The rest did not know.” Meanwhile, in an interview with Business Insider, the UK Trade Secretary Liam Fox argued that it would be a “complete betrayal” of the British Public if Theresa May decided to extend negotiations instead of accepting a no-deal Brexit. Fox further claimed that May would have to face a major Conservative rebellion if that were to materialize.
US Dollar – US Markets
The first estimate of the second quarter (annualized) real-GDP growth, the most-anticipated data of the week, came in at 4.1% following first quarter’s 2.2% growth and was in line with market expectations. Underlying details of the report published by the Bureau of Economic Analysis showed that consumer spending and business investments received a nice boost from tax cuts while exports contributed to the growth amid rising foreign demand. More importantly, real final sales, which is widely seen as an accurate gauge of the underlying economic strength, grew 4.3% in the second quarter.
Although these numbers heightened the expectations of the Fed making two more rate hikes in the remainder of the year, the greenback failed to gain value against its rivals as markets have been pricing an upbeat number since the beginning of the week.
In the meantime, the University of Michigan announced that the final reading of the Consumer Confidence Index in July improved to 97.9 from 97.1 in the previous estimate on the back of favourable job and income prospects. However, the report highlighted rising concerns over Trump administration’s trade policy. “Across all households, 35% spontaneously mentioned that the tariffs would have a negative economic impact in July, up from 21% in June and 15% in May,” the publication read.
Euro – European Markets
The data released by INSEE showed that the French economy grew by 0.2% in the second quarter to match the first quarter’s reading, but failed to match the experts’ estimate of 0.3%. On the other hand, annual retail sales in Spain increased by 0.1% in June following May’s 0.3% contraction while Germany’s import price index rose to 4.8% in June from 3.2% on a yearly basis.
The ECB Q3 18 Survey of Professional Forecasters showed that the inflation growth was seen at 1.7% in 2018 compared to 1.5% in the previous survey that was conducted three months ago. Moreover, 2019 inflation forecast was also revised up to 1.7% from 1.6%. Nonetheless, the shared currency didn’t show a noteworthy reaction to any of the data releases mentioned above and was virtually flat on a daily basis against its rivals.
What’s coming up?
UK: On Monday, the Bank of England is going to publish the consumer credit, net lending to individuals, and mortgage approvals figures. However, it’s unlikely to see any significant changes in the market valuation of Sterling ahead of Thursday’s critical BoE meeting.
US: Pending home sales, which is expected to contract by 6% on a yearly basis in June, and the Dallas Fed’s Manufacturing Business Index will be featured from the United States on Monday.
EU: The European Commission will be releasing the services sentiment, business climate, economic sentiment, industrial confidence, and consumer confidence indicators for July. Later in the European trading hours, Destatis is going to publish Germany’s inflation figures. Experts see the preliminary reading of the annual harmonized CPI to stay steady at 2.1% in July.