UK Consumer Spending Drops in July
Brexit uncertainty, rising inflation and sluggish wage growth have forced British consumers to cut spending on clothes, cars and holidays abroad. July was the third month in a row in which a decline in consumer spending was recorded, according to data published by Visa. Summer staycations seem to be the new normal for Britons, boosting the growth of the domestic leisure sector.
Downing Street denied that it would be willing to pay a Brexit divorce bill of up to £36bn, as a Sunday Telegraph report suggested. In the Eurozone, investors’ confidence dipped in August, according to a survey by Sentix. Sentix’s analysts said that the dip in confidence may be showing that the Eurozone’s economy has reached a peak.
Pound Sterling – UK Markets
Today, Sterling gained a bit of ground against the US Dollar with the exchange rate set at $1.30. On the contrary, the Pound dropped against the Euro with the exchange rate set at €1.10.
Visa’s published consumer spending index data showed that British consumers are cutting down on spending for cars, clothes and holidays abroad. In July Consumer spending dipped for the third straight month in the UK, which is the longest streak recorded since February 2013. Visa’s analysts noted that rising prices and weak wage growth are putting a break in consumers’ will to spend. However, Visa’s report said that the UK’s leisure sector is benefiting from the fact that Britons don’t go on holiday abroad, as data showed a 6% increase in spending in hotels, restaurants and bars.
The Halifax house price survey showed that house prices in the three months to July were 2.1% higher than a year ago, a bit better result than the anticipated 2.0%. This is the weakest annual rate recorded in the last four years. House prices were 0.2% lower than in the previous February-April quarter, indicating a slowdown in the UK’s economy. House market analysts suggest that the lack of supply is keeping prices up. They are concerned that prices are unaffordable for many first-buyers that must save money for over a decade to have enough for a deposit on the purchase of a house.
US Dollar – US Markets
The US Dollar retreated against the Euro with the exchange rate set at €0.84. The US currency had climbed Friday on news that Nonfarm Payrolls (NFPs) increased in July by more than expected, and the fact that unemployment in the US dropped to 4.3% from 4.4% in June.
Goldman Sachs released a report regarding the US employment report and its implications on the Fed’s policies. Their analysts noted that the positive Nonfarm Payrolls reading reflects a broad-based growth across the industrial sector. However, they forecast that the Fed won’t hike its rates during autumn, giving a 50% chance of doing it in December. Analysts at RBC Economics said in a report that they expect a 0.25% interest rate hike during the second half of 2017, followed by similar hikes in each of the four quarters of 2018.
Gary Cohn, the National Economic Council director, said in an interview that the Trump administration is working on a plan that aims to be bring corporate profits back to the US. Cohn, who may replace Janet Yellen as the Fed’s Chair, said that a temporary tax cut isn’t good enough and that the Congress should pass a permanent tax reform, which doesn’t add to the deficit. Cohn also suggested that the US must cut its corporate tax rate by a third to compete other developed countries.
Euro – European Markets
The Euro rallied against the US Dollar, with the exchange rate set at $1.18. The absence of important data releases in the beginning of the week has made analysts wait for the release of inflation data from the Eurozone’s four largest economies on Friday. This will be a key release for the Euro, as the European Central Bank (ECB) is focusing on inflation and is getting ready to start the normalisation of its policy.
According to a report published by Destatis, the German statistics office, the German factory output fell unexpectedly in June. Industrial production fell by 1.1%, despite the expectations for a 0.2% gain. The output from German factories had been growing for five consecutive months, before today’s negative reading. Analysts at Destatis said that weaker construction output and a slump in the production of consumer and capital goods were the main causes for the drop, which may be an indication that the German economy is losing momentum.
Staying in Germany, Deutsche Bank’s name was erased from the list of the world’s top-15 private banks, according to a survey by Scorpio Management, which is one of the world’s leading market research and consultancy firms. Deutsche Bank’s private banking assets fell by 28%, during 2016, as the US Department of Justice asked the bank to pay $14bn for selling toxic mortgage-backed securities, before the 2007 banking crisis. Confidence in the bank was rocked with its clients withdrawing billions of US Dollars from their accounts.
Other Currencies – Highlights
The Pound edged up against the Australian Dollar, trading at 1.64 AUD. Ai Group published its Performance of Construction Index (PCI) data for July. The Australian construction sector activity improved at the fastest pace in the last twelve years, according to the survey. Peter Burn, head of policy at the Ai Group, said that “the buoyancy of the sector is evident in strong levels of current activity and employment growth and growing order books.” Another report, by the ANZ bank this time, said that the number of job ads published increased in July for the fifth consecutive month. ANZ economists suggest that the strengthening Australian economy has led to improved demand for workers.
Sterling jumped against the New Zealand Dollar, trading at 1.76 NZD. A Reuters poll showed that New Zealand’s economists believe that the Reserve Bank of New Zealand (RBNZ) will leave its benchmark interest rate on hold at 1.75%, in a meeting later this week. Almost half of them forecast that the RBNZ will hike the rate by the second quarter of the next year. The RBNZ’s quarterly survey of inflation expectations showed that inflation, in a year from now, will be at 1.77%, lower than the 1.92% previously estimated.