Speeches by BoE’s Carney and Fed Officials Awaited
Today, the Governor of the Bank of England (BoE), Mark Carney, is expected to present the bank’s Inflation Report to Parliament and give a speech on the UK’s financial stability. A few hours later, the BoE will release its Quarterly Bulletin. Earlier in the session, a survey revealed that growth in UK’s retail sales slowed in June, mainly due to bad weather and uncertainty surrounding the EU Referendum. In the Eurozone, data confirmed that growth in consumer prices in Germany picked up pace in June.
In the US, Federal Reserve (Fed) officials James Bullard, Daniel K. Tarullo, Neel Kashkari and Loretta Mester are scheduled to speak later in the day. On the economic front, data on US wholesale inventories and job openings are due today.
Pound Sterling – UK Markets
The Pound swung back sharply against the greenback and the Euro during the morning session and breached the crucial 1.31 handle against the US Dollar, following an unexpected chain of events that will see Theresa May being installed as the new UK Prime Minister on 13 July 2016. The move has eased uncertainty that investors were expecting to run for another couple of months. Meanwhile, a survey from the British Chambers of Commerce disclosed that the UK economy was struggling even before the anxiety created by last month’s vote to leave the EU, with both domestic and overseas sales falling. Overnight data showed that UK retail sales growth slowed in June according to the latest BRC survey.
Going forward, the BoE Governor, Mark Carney, is scheduled to hold a speech at a hearing of the Treasury Committee in London, the only major market mover for Sterling today. Meanwhile, all eyes will be on the BoE’s first monetary policy gathering since the Brexit vote, scheduled on Thursday.
US Dollar – US Markets
Yesterday, the US Dollar ended lower against most of its major peers, reversing its gains from thr previous session, as investors digested Friday’s upbeat US nonfarm payrolls report for June. On the data front, the US labour market conditions index continued to show signs of sluggishness in June. However, the decline was considered to be at a more moderate pace as the nation’s economy moved closer to full employment. The index has registered its sixth successive monthly decline, the longest decline since the end of the recession in 2009. The data overall will not force the US Federal Reserve towards short-term tightening given broader concerns over global economic growth and inflationary pressures. Further evidence will be required to convince markets of a sustained improvement, despite the robust nonfarm payrolls data last Friday.
The greenback is trading lower against most of its key peers this morning. Moving forward, market participants will focus on the US NFIB business optimism index for June, wholesale inventories for May and Fed’s Tarullo and Bullard speeches, scheduled later in the day.
Euro – European Markets
The single currency has gained ground against the greenback after German inflation rate rose in line with consensus estimates in June, as an energy price slowdown eased and food prices picked up. However, consumer prices in the Eurozone’s largest economy remained well below the European Central Bank (ECB’s) 2% target, a level it considers healthy for growth. The subdued inflation growth indicates that the ECB may have to ponder expanding its bond-buying programme to jump-start sluggish growth if inflation in the region does not rise from its current low level.
Yesterday, the European Commission, the EU’s executive arm, cautioned ministers that prolonged uncertainty over the EU’s future relationship with Britain would be costlier for the region’s growth. Additionally, it has downgraded its forecasts for growth in the Eurozone and the UK as a consequence of Brexit. The Commission estimated the Euro economy to contract by between 0.2% and 0.5% by next year and also projected that Britain’s GDP would be affected by between 1% and 2.5% by 2017.
Other Currencies – Highlights
The Australian Dollar reversed its previous session losses and turned higher against the greenback this morning. Data from National Australia Bank’s survey showed that businesses confidence index advanced in June as businesses sounded upbeat about the Australian economy, shrugging off concerns surrounding heightened political uncertainty in UK and Australian federal elections. Further, business conditions also increased in the same month. Earlier in the session, the number of home loans issued in the nation dropped less than market expectations in May. Australia’s economic releases in the week ahead include the country’s monthly unemployment data, consumer inflation expectations along with the Westpac consumer confidence index data.
Elsewhere in China, Australia’s largest trading partner, the main gauge of inflation indicated that consumer prices rose at a slower pace in June, suggesting that more economic and financial stimulus may be on the cards to boost the world’s second largest economy. On the other hand, the nation’s producer prices declined on an annual basis in June and remained mired in the deflationary territory for almost four years.