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July 2016

Sterling level ahead of GDP data

Published: Wednesday 27 July 2016


  • Sterling level ahead of GDP data
  • Aussie inflation beats expectations – rate cuts may be on hold
  • US Fed decision and statement this evening

It seems markets are a little wary of positive news from the UK. The announcement of a 275 million pound investment in UK plant by Glaxo Smith Kline (a company that was very pro-Remain) is great news for the UK, as is positive property market news from Taylor Wimpey but Sterling's positive response to these announcements was almost imperceptible. Traders are clearly awaiting the first estimate of Britain's Q2 economic growth. That isn't going to tell us a lot other than that Britain was in pretty good health before the EU referendum and that we need to see the Q3 data to find out is much has changed. Quarterly growth of 0.4-0.5% is forecast, so anything above or below that will have the obvious impact on the value of the Pound.
 
We heard overnight that Australia inflation was marginally above market expectations in Quarter 2. The 0.45% gain was only 5 100ths of a percentage point above the forecasts but it is likely to mean the Reserve Bank of Australian holds off from cutting the base rate at their next meeting. Interestingly, the Australian Dollar strengthened to 1.74 against Sterling around the time of the announcement but weakened back to 1.75 against the Pound in the immediate aftermath.
 
Today brings the interest rate decision from the US Federal Reserve. US data has been rather upbeat of late and the US Dollar is ridiculously strong; benefitting from its safe haven status and the turmoil in the rest of the world. However, it is probably too early for the Federal Reserve to be hiking interest rates. They are clearly rattled by the fallout that could ensure following the UK's vote to detach itself from the EU and are almost certainly in a holding pattern until further global data emerges post-Brexit. The pace of the US Dollar's advance has slowed to almost zero ahead of that decision and may even reverse dependent on the tone of the Fed statement.
 
As for the Eurozone; after Brexit there is talk of the French having a 'Frexit' vote and now we have the potential for Quitaly. (Quite clever). There have been a number of articles written recently suggesting 20 years of virtually zero growth has driven Italy to the brink of leaving the Euro and adopting the Lira again. I am sure many in Italy would love that but the impact on Germany and the rest of the Eurozone would be significant. It is a story to watch.
 
And the New York subway rule that says dogs are allowed as long as they are lap sized and 'contained at all times' has spawned a new phenomenon. It's not just Pugs and Chihuahuas that are being 'bagged' onto the trains but much larger dogs are being placed in pretty big bags as well. In fact the size of dog you can take on is only limited by your ability to lug Rover around. It's a new kind of pet-friendly-commute-workout-regime thing for some. However, even the strongest of passengers would struggle to get Major, a Great Dane who may well be the tallest dog in the world onto a train. He measures 51 inches to the shoulder and weighs in at 12 stone. We're gonna need a bigger bag.
 

Joke

 
Two guys are driving down a boiling hot Arizona highway drinking a couple of cool beers when they see a police roadblock in the distance.
 
Cletus turns to Ethan and says, "They are going to fine us for drinking these beers in public and probably throw you in jail for drinking and driving."
 
Ethan says, "Don't you worry. Just peel the labels off these beers." Cletus does that and Ethan makes him stick one of the labels on his arm. Ethan does the same and then proceeds down the road to the road block where a State patrolman waves him to a halt.

The officer walks to Ethan's side of the car and says, "Howdy gents. I smell beer. Have you boys been drinking?"
 
"Nope, not us officer," says Ethan, rolling up his sleeve to show the label. "We used to but now were quitting. We are on the patches these days."

 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
EUR 09:00 EU: M3 money supply  y/y 4.9% 5.0%
GBP 09:30 UK: Prelim GDP q/q 0.4% 0.5%
USD 13:30 US: Core durable goods orders m/m -0.3% 0.3%
USD 13:30 US: Durable goods orders m/m -2.3% -1.1%
USD 15:00 US: Pending home sales m/m -3.7% -1.1%
USD 19:00 US: FOMC statement    
USD 19:00 US: Federal funds rate <0.50% <0.50%

FX Research by David Johnson

Daily Currency Analysis with Chris Verdet


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