All Eyes on the ECB’s Interest Rate Decision Today
It is the European Central Bank’s (ECB) interest rate day today. The ECB will hold its first monetary policy meeting post Brexit, followed by a press conference which will be presided by the ECB Chief, Mario Draghi. The central bank is widely expected to hold the benchmark interest rate steady, but markets will closely watch the ECB President’s comments about the impact of Brexit on the Eurozone economy.
Across the English Channel, the just released data showed that UK’s retail sales dropped in June. On the political front, Britain’s Prime Minister (PM) Theresa May will meet the French President, Francois Hollande, in Paris to discuss Britain’s plans to leave the European Union (EU). After meeting her German counterpart, Angela Merkel, in Berlin yesterday, UK’s PM repeated that the nation will not trigger the two-year Article 50 process until at least the end of this year. In the US, weekly jobless claims and the Philadelphia manufacturing data is due.
Pound Sterling – UK Markets
The Pound has reversed its previous session gains against the US Dollar and shared currency this morning, after the just out data showed that British retail sales posted its biggest drop in six months in June, mainly led by a decline in sales at clothing stores. In addition to this, the nation’s public sector net borrowing recorded a deficit in June.
Yesterday, Sterling witnessed a burst of upward movement against is major peers following a double dose of good news from Britain. UK’s unemployment rate surpassed investor expectations and dropped to its lowest level in more than a decade during the three months to May. Although the jobs data reflected pre-referendum conditions, it sounded mildly encouraging to market participants. Soon after this, the Bank of England surprisingly did a volte-face and indicated in its regional agents’ monthly survey that a majority of British firms have no plans to slash hiring or investment and consider it to be business as usual.
US Dollar – US Markets
The greenback is trading mixed against the Euro and the Pound this morning. There is a string of economic releases lined up in the US today. First up is the nation’s weekly jobless claims data which is expected to post an increase. This will be followed by the US Chicago Fed national activity index for June. The index had painted a worrisome picture of the nation’s macro trend in the May report, when the index slumped to a four-year low level. But in the subsequent weeks following its last update, the US nonfarm payrolls and retail sales data perked up in June. As a result, the Chicago national activity index is expected to register an improvement in June. Additionally, the US Philadelphia Fed manufacturing index is also up for release later today and is expected to post a slight uptick in July. Further, the US will witness the final set of US housing data for this week.
Yesterday, after recording two consecutive weeks of gains, US mortgage applications reversed course and declined last week.
Euro – European Markets
The shared currency is trading higher against the greenback and the Pound this morning. Today, market participants will focus on the ECB’s first monetary policy meeting after UK’s vote to exit the European Union (EU). While the central bank is widely expected to stand pat on interest rate today amid a dearth of post-Brexit data, investors will scrutinise the ECB President Mario Draghi’s comments about the Eurozone’s economic outlook in a conference following the meeting. Expectations are that the ECB Chief will strike a dovish tone and perhaps hint at further stimulus to offset the hit to the economy from the shocking Brexit decision. On the data front, the French business climate index surprisingly advanced in July, with outlook improving in every sector after recording a decline last month.
Yesterday, the Euro extended its decline versus the US Dollar for the second consecutive session after a preliminary reading of the Eurozone’s consumer confidence index dropped further in July, signaling fresh signs of weaker morale that is capable of hampering economic growth over the coming months.
Other Currencies – Highlights
The Swiss Franc has reversed its losses against the US Dollar this morning, rising for the first time in three sessions. Data released earlier during the session indicated that Switzerland’s trade surplus narrowed in June as both exports and imports slid. Another disheartening report was from the Federation of the Swiss watch industry FH which showed that Swiss watch exports have continued their journey down the slope in June. Watches form the bulk of the Alpine nation’s exports after pharmaceuticals and machinery. Last month, all the principal watch markets had witnessed a decline with Hong Kong reporting a steep downturn for the 17th consecutive month. Meanwhile, other Asian markets including Japan and China were less seriously affected. In other economic news, Swiss M3 money supply advanced in June, and the Swiss economic sentiment deteriorated in July mainly due to the Brexit vote.
Looking ahead, market participants await the release of Switzerland’s UBS consumption indicator and the KOF leading indicator data, both due next week.