Good morning
Lets start with the UK inflation numbers that were released this morning. A surprise drop in YoY CPI and core CPI to 7.9% and 6.9% respectively sent GBP sharply lower. It had moved a bit lower though yesterday, GBPUSD moving from 1.3100 to 1.3030 and GBPEUR from 1.1650 or so to 1.1600. The release this morning saw GBPUSD slip to 1.2930, now 1.2960, GBPEUR moved from 1.1600 to 1.1535, now 1.1545. The drop in the Core reading will be a relief to BoE, it has been stubbornly high in recent months and any lower number is welcome.
GBP also lower in other crosses as you’d imagine. GBPNZD saw some decent swings overnight, initially trading lower from 2.0770 to 2.0645 as NZ CPI numbers came out above expectations, before working its way steadily back up to 2.0830, only to drop again on UK inflation to 2.0730, rally to 2.0800 and then drop once more to 2.0690 where we are right now, just a few pips away from levels seen this time yesterday morning.
EURUSD has been fairly stable since the end of last week, it closed last Thursday around 1.1225, a very brief spike yesterday took it to 1.1270 on the US retail sales release, otherwise its been in a 1.1200-1.1245 range and now sits back at that 1.1225 level. USDJPY was also pushed around after the US retail sales data, moving from 138.20 to 137.70, then reversing those losses and moving up to 138.60 and after a bit more toing and froing climbed to 139.60, now at 139.25. The US retail sales were a bit of a mystery, the headline was lower than expected, MoM for June was 0.2% against expected 0.5%, but the control group for June came in at 0.6% against an expected -0.3%. Market didn’t know where to turn, leading to those swings.
CAD inflation yesterday was weaker than expected, we saw an initial weakness in CAD with USDCAD moving up to 1.3240 but the pair soon settled back to 1.3165, a level which has offered support through this week and is well worth keeping an eye on.
All this lower inflation is starting to impact central bank rate expectations. Not long ago we were talking of a peak in US rates at 6%, now much of the market sees a July rise of 25bps to take rates to 5.5%, but no further rises after that. I think even the July rise might be in question. US equities have been on the up as you’d expect and although I’ve not seen any official forecast change in the UK yet, the inflation report has offered relief to the FTSE 100 which is up 1.5% or so this morning. I presume we’ll see doubts over whether BoE will raise 50bps in August.
Other than the markets, focus is clearly on the heatwave that is gripping parts of the US, Europe and Asia, which has seen record high temperatures in some parts but it is the length of the heatwave that makes this more worrying than others. Phoenix, Arizona has been above 40 degrees Celsius for three weeks or so now while Death Valley is within a degree or two of the record high recorded on earth which came in at 56.7 degrees back in 1913. Meanwhile in the UK it’s a rather wet and miserable 20 degrees, I’d normally be complaining but on this occasion we may well be better off. I’m hoping we haven’t seen the last of our warm weather mind you.
US climate envoy John Kerry has been in China to discuss reducing emissions but China make it clear they will decide their own path and will not be dictated to by others. Not sure Kerry is the best person to talk about emissions, accused as he is of climate hypocrisy as it became clear his family owned a private jet for some years. Kerry initially denied having owned a private jet, only to then explain it was his wife who owned one. I don’t mind who has a private jet but its not exactly leading by example as a climate envoy!
- 10.00 EU HICP
- 13.30 US building permits, housing starts
- 17.00 BoEs Ramsden speaks
- 00.50 Japan trade balance
- 02.15 PBoC rate announcement
- 02.30 AUS employment