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July

Australian base rate on hold for some time

Published: Tuesday 17 July 2018

  • Eurozone faces mounting problems
  • UK employment and wages data will point the way for Sterling
​​By David Johnson

The Reserve Bank of Australia (RBA) released the minutes from their last meeting last night. Whilst there was a hint that the next interest rate move was likely to be a hike, that doesn’t seem at all likely in the medium term. The Australian Dollar was largely unmoved by the vagueness of this message.
 
Eurozone prepares for bad news

There has been a bit of bad news (well, forecasts of bad news) for the Eurozone. According to one member of the European Central Bank (ECB), Germany needs to prepare itself for tough times ahead because the ECB has limited scope to step in; largely because interest rates and quantitative easing (QE) levels have not yet normalised since the 2007 crisis. Also, the International Monetary Fund (IMF) has downgraded its growth forecasts for the Eurozone for 2.18. Down from 2.4% to 2.2%, but the IMF doesn’t have a great record of forecasting anything, so maybe that is a red herring. There is really only Italian inflation data to follow from an EU perspective today, so the Euro is likely to slide a little but not a lot.
 
UK employment data today unlikely to boost Pound

UK data is a little more exciting though, as we get employment and earnings data today. With employment at virtually full capacity, the unemployment rate is still at 4.2%, but average earnings, although still in the high 2.0% area, have dropped a little from last month, to 2.5% from 2.6%. That is still ahead of inflation and therefore positive for economic growth, although today’s results are unlikely to provide much support for the Pound.
 
US industrial data expected but USD safe haven status is the more interesting measure

US data is also in full attendance today. Industrial production and manufacturing output data is expected to show a rebound from last month’s negative numbers and we expect there to be a small rise in capacity utilisation; a positive for wage and employment growth. What will be interesting is the level of inward flow of funds into the US treasury market. We have seen enormous increases in the amount of money pushing into the safety of the US bond market over the first few months of 2018 and May is likely to continue that trend. This says something about the safe haven status of Uncle Sam’s coffers but also about global investor nervousness. I guess with Trump on the rampage, that isn’t a surprise.
 
A royal by any other name…

And on this day in 1917, King George V changed the name of the royal family from Saxe-Coburg-Gotha to Windsor. I guess it was either that or we ended up with a Saxe-Coburg-Gotha-on-Thames in Berkshire. Good choice, Your Highness.
Harsh words
 
A doctor and his wife were having a blazing row over breakfast. Very harsh words were being exchanged. Finally, the doctor threw down his cutlery, grabbed his bag and coat and as he got to the door, he turned and shouted, “And you are rubbish in bed as well,” before slamming the door and leaving.
 
Later that morning, he was feeling dreadful about saying such a nasty thing, so he summoned up the courage to call his wife to apologise. The phone rang and rang and then she answered the phone panting and breathless.
 
“Are you OK?” he asked.
 
“Yes fine,” she said, “What do you want?”
 
“Well,” he said, I felt really bad about what I said when I left this morning and I called to apologise. Were you in the garden? The phone rang for so long.”
 
“I was in bed,” she said.
 
“What are you doing in bed at 11am?”
 
“Just getting a second opinion,” she said.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Average Earning Index 2.5% 2.5%
GBP 09:30 UK: Claimant Count Change -7.7k 2.3k
GBP 09:30 UK: Unemployment Rate 4.2% 4.2%
CAD 13:30 Canada: Manufacturing Sales -1.3% -1.3%
USD 14:15 US: Capacity Utilization Sales 77.9% 78.4%
USD 14:15 US: Industrial Production -0.1% 0.5%

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