ACM Update 14-08-23
Overall, a reasonably quiet period for market data. The main UK releases have been GDP focused, with the month-on-month GDP figure showing an increase of 0.5% from May to June. According to the Office for National Statistics, this was attributed to the warmer weather in June, as well as no bank holidays compared to May.
This means the UK economy grew by 0.2% in Q2, smashing the 0.1% of Q1. Rishi Sunak used the opportunity to say his pledge to grow the economy in 2023 “is working”.
According to Halifax, UK house prices fell by -0.3% in July, now -2.4% compared with a year ago. This was the fourth monthly drop in a row. Other gloomy figures included the British Retail Consortium retail sales monitor which showed like for like retail sales grew (YoY) by 1.8% versus 3.0% expected. This release is a precursor to the official Government retail sales figures so offers some clues.
In the Eurozone, German data remains the biggest concern with industrial production figures for June coming in -1.5% down on May. Inflation for July was confirmed as 6.2% for the German economy, leaving them as the Eurozone’s problem child. High food prices are still the biggest culprit. French inflation meanwhile dropped to 4.3% in July, its lowest since February 2022.
The ECB released their Economic Bulletin, which comes out 8 times a year, two weeks after their interest rate announcement. A lot of obvious statements, such as “inflation continues to decline but is still expected to remain too high for too long” as well as the phrase “data-driven” making a number of appearances. The Euro seems to be treading water at the moment.
Recent fluctuations on GBP-EUR can be seen in the chart below:
US inflation came down to 3.2% in August, a fraction better than the 3.3% forecast. This caused a knee-jerk weakening for the Dollar on Thursday lunchtime, which very quickly corrected itself when Unemployment Claims came in higher than expected (their worst in 7 weeks). US PPI came in a fraction worse than expected, up 0.3% MoM and 0.8% YoY, which strengthened the Dollar on Friday. The yo-yo of whether the Fed need to/should raise rates again continues.
Indeed, two Fed members spoke last week about the current interest rate position. Governor Michelle Bowman supported last month’s hike but suggests more rate increases (plural) will be needed to get back to a stable 2% inflation figure.
Just to balance the scales, fellow Fed member Patrick Harker thinks the Fed could be at the end of their rate hikes. He reaffirmed though not to expect rate cuts any time soon. A bit of to and fro ensued on GBP-USD last week, as illustrated by the chart below:
This week:
Monday – German WPI (07:00 UK time)
Tuesday – FRA/ESP/ITA Bank Holiday, RBA Monetary Policy Minutes (02:30), UK Claimant Count & Unemployment (07:00), German ZEW Economic Sentiment (10:00), Canada CPI Inflation (13:30), US Retail Sales (13:30)
Wednesday – RBNZ rate announcement (03:00), UK CPI inflation exp 6.8% (07:00), Federal Reserve Minutes (19:00)
Thursday – Australian Unemployment Rate (02:30), US Unemployment Claims (13:30)
Friday – UK Retail Sales exp -0.4% (07:00)
After a very light Monday for market data, Tuesday onwards will produce the majority of the data releases. Worth noting that Tuesday is also a public holiday for a number of European countries.
UK releases will be main points of note with Unemployment first up. Unemployment is forecast to remain at 4.0% and any deviation from this will cause movement. The claimant count figures at the same time will be carefully monitored given the fragile growth of the UK economy.
Clues towards the Bank of England’s next action will be further driven by Wednesday’s inflation figures. Given the recent fall in energy prices in July, year-on-year inflation is forecast to have fallen from 7.9% last month to 6.8%. This still seems like a sizeable move given other costs are still rising, so watch for anything above 6.8% to lean on more rate hikes from the Bank of England, thus boosting the pound.
Retail sales (expected to shrink by -0.4% from June to July) close out the week in terms of GBP data.
The equivalent retail sales numbers from the US also land this week, on Wednesday. However the American figure is expected to show a growth of 0.4% instead for the same period.
Watched more closely though will be the Federal Reserve minutes from their last meeting, released at 7pm UK time on Wednesday evening. Any clues as to September’s Fed action will be keenly digested by markets.
Have a great week.
