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August 2016

US rate hikes delayed but still happening

Published: Tuesday 30 August 2016

  • US rate hikes delayed but still happening
  • German Vice Chancellor warns of Brexit effect
  • US employment report tops week’s data

It was so sad to hear of the passing of Gene Wilder. His film with Richard Pryor, Stir Crazy was on TV recently and 36 years after its first release; it still made me laugh out loud. Such a talent and still the better Willy Wonka.
A 0.4% rise in US personal income and a 0.3% rise in expenditure in the month to July will add weight to the calls for interest rate rises from the Federal Reserve. Last week finished with the Chair of the Federal Reserve offering few clues to the timing of the next US rate hike but late in the year is the best bet and maybe early into next year is almost as likely.  The markets took these comments as quite hawkish and the US Dollar strengthened as a result. There is US data this week but nothing will top Friday’s August employment report and that is forecast to be bullish. Hence, we think the US Dollar could end the week even stronger. The Sterling – USD rate is hovering just above $1.30.
Sterling is stable against the Euro even after the German Vice Chancellor warned that the EU would suffer if the Brexit negotiations are handled badly. He warned that further Brexit type votes could put the future of the EU in doubt.
We had much improved Japanese retail sales data overnight and the Yen stopped weakening at least. It even regained a little ground against the US Dollar.
The rest of the week brings a wave of Purchasing Managers indices from around the world. You’ll remember that the Pound slumped when the first post-Brexit-vote PMIs were very poor. However, we are expecting some sort of recovery in these indices this week, so there is scope for Sterling strength if that is so. The Pound is faced with, what ought to be slightly poorer UK mortgage lending data though. That could put a dampener on things.
Other than these, there isn’t a lot of tier one data but plenty of middling releases which can still surprise and cause volatility. However, it is the last week of the month and the first couple of days of the next, so there will be volatile trading in the next 48 hours.
And a family in Mexico has been reunited with the grandfather they thought they had seen cremated a few weeks earlier. Miguel Angel Gomar De Luna, escaped from his nursing home and went on a drinking spree. When the police were called to track him down, they found a body but it was impossible to identify it. Hence a cremation took place but Miguel was just dead drunk and not actually dead. His ‘resurrection’ happened two months after he left the nursing home and now the family has to try to re-establish his ID after filing him as deceased.  

Heavenly solution

Three vicars are talking over tea and sandwiches at a village fete. The first says, “We have a dreadful rat problem in St Steven’s. Can’t get rid of the little blighters.”
“I know what you mean,” says the second vicar. “At St Michael’s, we tried poison, traps and even had a chap come out to shoot them but there are always more than you know.”
“We had a rodent problem at Saint Bart’s but I have arrived at a sort of solution.” Said the third priest.
With that, the other two sat up and paid attention.
He carried on, “We baptised the lot of ‘em. Now they only show up at Christmas and Easter.” 

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Net lending to individuals m/m 5.2b 4.9b
GBP 09:30 UK: M4 money supply m/m 1.1% 1.2%
GBP 09:30 UK: Mortgage approvals 65k 63k
CAD 13:30 Canada: Current account -16.8b -20.6b
CAD 13:30 Canada: RMPI m/m 1.8% -1.3%
USD 15:00 US: CB consumer confidence 97.3 97.2

FX Research by David Johnson

Daily Currency Analysis with Joe De Berniere

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