UK Retail Sales Beat Expectations
Three events are taking over today’s news agenda: the UK retail sales, the European Central Bank (ECB) monetary policy meeting, and the Bank of Japan (BoJ) cutting inflation forecasts, while maintaining its stimulus programme. The Office for National Statistics (ONS) published June’s retail sales data, which surpassed expectations showing that, despite inflation and sluggish wage growth, consumer spending in the UK is holding up.
In the country of the rising sun, the BoJ pushed back its inflation target, this being the 6th time since the central bank launched its asset-buying programme four years ago. BoJ’s Governor, Haruhiko Kuroda, admitted that the 2% inflation target could only be achieved by 2020. Kuroda didn’t rule out increasing the BoJ’s stimulus programme. In Frankfurt, the ECB’s board members are meeting to discuss monetary policy in the Eurozone and markets are expecting to see if there will be clues regarding the gradual reduction (tapering) of the ECB’s bond-buying programme.
Pound Sterling – UK Markets
Today, Sterling dropped against the US Dollar, with the exchange rate set at $1.29. The British Pound also fell against the Euro, trading at €1.12. However, it wasn’t all bad news for the British economy.
The ONS published its June’s retail trade report, which showed that consumer spending in the UK surpassed the analysts’ expectations in a difficult time for the country’s Brexit-hit economy. Retail sales in June increased by 0.6% on a monthly basis, against the expected 0.4%, and following the 1.2% in May. Retail sales, on a yearly basis this time, rose by 2.9% versus the estimated 2.5%. Analysts at ONS said that retail sales figures showed overall growth and noted that June’s high temperatures prompted strong sales in clothing, which compensated for a decline in food and fuel sales.
Liam Fox, the international trade secretary and a Brexit-hardliner, said in an interview on BBC that the UK wants to have a deal with the EU, regarding the exit from the Union, but added that Britain can survive with no deal. Fox also said that he is open to the possibility of a transitional period between leaving the EU and the final settlement, however, he stressed the need for the UK to leave the EU “first of all to keep faith with the voters who instructed us to do that.”
US Dollar – US Markets
The US Dollar gained minor ground against the Euro, with the exchange rate set at €0.86. Traders seemed to be calmer after the “Trumpcare” fiasco and are still supporting the US Dollar, expecting to hear the European Central Bank’ announcement about its monetary policy in the afternoon.
At the political front, President Trump remains the real protagonist for one more day. In an interview with the New York Times, Donald Trump said that he would never have appointed Jeff Sessions as attorney general if he had known that he would recuse himself from the “Russia” investigation. “Sessions takes the job, gets into the job, recuses himself, which frankly I think is very unfair to the president,” said Trump, who added that the word “unfair” is very mild in this case. The US President covertly warned special counsel Robert Mueller not to investigate into his family’s finances saying that “I think that’s a violation. Look, this is about Russia.”
According to sources from Reuters, the Chinese embassy in Washington stated that China and the US agreed to work on reducing the US trade deficit with China and that there has been significant progress on a 100-day action plan regarding trade. The two sides also discussed a 1-year action plan on economic cooperation and to create a more equitable investment environment.
Euro – European Markets
The Euro slumped against the US Dollar, with the exchange rate hovering around the $1.15 mark. All eyes have turned to the ECB’s policy meeting that will take place today in Frankfurt. Mario Draghi’s speech three weeks ago in Portugal put traders and investors on high alert, since the Italian ECB president hinted at the possibility of tightening the Eurozone central bank’s monetary policy. The ECB’s stimulus programme, which was introduced to help economies face the financial crisis’ problems in previous years, is still mopping up €60bn of bonds every month. The strengthening of the Eurozone’s economy and hints by Draghi have made the markets eager to listen to a statement that will imply tapering is coming, which means that the ECB will begin to gradually reduce its bond-buying programme.
Economists at BNP Paribas suggest that Draghi will avoid the kind of language that will lead to the Euro’s appreciation and are expecting that the ECB’s board will offer little information on its plans to begin tapering in January of 2018. Market experts agree that any hint of tapering will help the Euro surge against the US Dollar, but if Draghi’s comments aren’t in line with his speech in Sintra, then the single market currency may sink.
Other Currencies – Highlights
Sterling reversed its course downwards against the Australian Dollar, gaining 0.3% in value and trading at 1.64 AUD. The Australian Bureau of Statistics (ABS) published data that showed that the unemployment rate remained stable at 5.6% in June, which is close to its lowest level in the last four years. Economists were expecting that unemployment would fall at 5.5%. The number of full-time employees increased by 62,000 and data indicated that the Australian economy has created more than 160,000 jobs since the beginning of the year, with most of them being full-time.
The Pound slumped against the New Zealand Dollar, trading at 1.76 NZD. Retail NZ, which has been producing Wages Reports since 1993, published its retail wage survey for 2017. The survey’s results showed that wages across the retail sector increased by 5.1% over the last year, from $20.73 to $21.80. Analysts at Retail NZ expressed the opinion that there is an increased demand for skilled staff and that retailers are increasingly seeking to invest in their employees. The survey showed that more than 209,000 New Zealanders work in the retail sector, which makes for 10% of all jobs in the Oceanic country.