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July 2016

BOE unmoved by rate cut expectations

Published: Friday 15 July 2016

‚Äč
  • BOE unmoved by rate cut expectations
  • Chinese data shows improvement
  • NZ inflation due before Monday

As the cabinet is being formed, the Bank of England took the spotlight in, what was anticipated to be the first announcement of a couple of interest rate cuts. But the BOE was having none of it. Clearly taking some reassurance from the small rebound in the value of the Pound and perhaps uncertain with so little post-Brexit economic data to ponder, the Monetary Policy Committee decided to keep the base rate on hold at 0.5%. They did though suggest a rate cut was likely in August. We should have known really; the BOE has never in its independent life, acted pre-emptively. Why would they start now! Sterling strengthened a little on the news but not too much. Most traders and analysts are still expecting lower UK interest rates and that will keep the Pound under pressure for the time being. We get a speech from Mark Carney today, so his words will be analysed to within an inch of their lives.
 
The markets will perhaps take some confidence that China’s gross domestic product showed a healthy recovery in Q2. I am not sure how much people trust Chinese data; so shrouded in secrecy as it is but the fact that they reported improvement will allay some fears over the Aussie and Kiwi Dollars. The Chinese also reported a nice uplift in retail sales and so, we must assume that everything is peachy in China in spite of the global slowdown.
 
This afternoon brings US retail sales data and I suspect these will not be as positive as the Chinese data.  A decline in the growth rate to 0.1% or thereabouts is forecast but it is unlikely to dampen demand for the safe haven USD.
 
Over the weekend we will get New Zealand’s inflation data which won’t yet reflect the recent strength of the NZ Dollar; the long term impact of which will be to lower inflation on imported goods. It does though make NZ exporters less attractive to overseas buyers and damages the competitiveness of their immensely important dairy exports. The RBNZ will be watching with a keen interest.
 
And if you were planning on mounting an armed robbery over the weekend, I suggest you don’t do it in Aurora, Colorado and don’t try to rob Arapahoe County Deputy Jose Marquez. Two, would-be muggers doing just that were shot at by the off duty Sherriff’s Deputy; disabling one robber’s gun and injuring his accomplice. In fact the Deputy’s bullet had gone straight down the barrel of the robber’s weapon, disabling it but leaving the guy alive to be arrested. Deputy Jose Marquez was also shot in the exchange but his wounds were not life threatening. That ‘down the barrel’ shot sounds like a movies spoof but it was a one in a billion long shot if you’ll excuse the pun.
 

Catch of the day

 
A travelling salesman gets out of his car and runs through torrential rain towards a bar. As he gets to the cover of the awning in front of the bar, he sees an elderly man sitting in the pouring rain with a fishing rod. He is dangling a line into a huge puddle in the road.
 
‘Poor old thing probably has some sort of dementia,’ he thinks. “Hey,” he shouts. “Let’s get you out of the rain. I am getting something warm to eat. Will you join me?”
The old guy smiles at him before packing up his rod and joining him under the awning. They go inside and the old chap is so wet that the waitress takes his coat out to the kitchen to dry it over the heat. They order food; the salesman asks for a soda water and the old chap orders a double bourbon.
 
Neither of them says much until the salesman laughingly says, “So did you catch much?”
 
The old guy takes a sip of his whiskey and says, “You’re the third this week”.

 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
EUR 10:00 EU: Final CPI y/y 0.1% 0.1%
GBP 13:00 BoE Gov Carney speaks    
CAD 13:30 Canada: Manufacturing sales m/m 1.0% 1.0%
CAD 13:30 Canada: CPI m/m 0.2% 0.2%
CAD 13:30 Canada: Core CPI m/m 0.2% 0.2%
USD 13:30 US: Core retail sales m/m 0.4% 0.4%
USD 13:30 US: Retail sales m/m 0.4% 0.4%
USD 14:30 US: Industrial production m/m -0.4% 0.2%

FX Research by David Johnson

Daily Currency Analysis with William Busby

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