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Markets eye US retail sales, UK inflation releases

Good morning

It was a slow start to the week for currencies, no major surprise given the light calendar yesterday coming ahead of a pretty busy few days. US retail sales comes this afternoon while we also see inflation numbers from Canada, NZ and then from the UK early tomorrow morning.

There is some hope that the UK will see a slower inflation rate but the YoY is still likely to be above 8% and core still above 7%, which gives BoE little room to do anything other than raise rates. GBP does continue to find support, currently trading up at 1.3085 vs USD although is a touch lower again against EUR at 1.1620 with some looking for even lower GBP levels against EUR. If, and it is a big ‘if’, we do see a significantly lower core inflation reading tomorrow then maybe the GBP bulls will have to rethink but for now that core inflation remains stubbornly high, unaffected as it is by lower energy and food prices. I worry that UK inflation seems to be running high while other nations are seeing inflation fall. I presume the recently announced rise in UK public sector pay won’t help the inflation numbers at all.

Further China stimulus is likely to be seen soon but Yellen has warned that the slowdown in growth seen in China could have a ripple effect on the rest of the world although she doesn’t see this as pushing US into recession. Goldmans have cut their chances of a US recession in the coming twelve months from 25% to 20%. Mind you UBS do still see a risk of US recession and have also cut EU growth forecasts for this year and next. Mind you its worth remembering that the impact of recent rates rises is still not fully understood and NY Fed report has said the US public are increasingly facing difficulty in borrowing. US retail sales numbers today could support the idea that US citizens are cutting back on spending.

RBA minutes overnight showed they did consider a 25bps raise but chose to leave rates on hold at the last meeting, saying that current policy is clearly restrictive and is risking growth, but did leave the door open for further rate rises if needed. There is great uncertainty about the resilience of households to fight the squeeze in financing. This is possibly a story that will be heard from other central banks. GBPAUD broadly unchanged at 1.9200.

The US dollar reserve currency status has been dealt a blow as India and UAE announce plans to settle trades in Rupee rather than dollars. This isn’t new news, it has been talked about for some time but was only signed at the weekend. I’m not sure how well this idea is going to work though. It is supposed the decrease costs but reducing the need for USD conversions. Mind you, INR is extremely weak right now, helped in part by low inflation in India. The benefits of no currency conversion may not be felt.

Lots of concerns doing the rounds that Europe gas prices will potentially rocket again this winter. We don’t really trade energy products although do have the permissions to do so, I did see a trade idea from BNP yesterday looking for higher gas prices as they felt it was priced too cheap. They looked at buying a Feb 24 50/80 call spread, funded in full or in part by selling lower strike puts. Doesn’t bode well for our fuel bills.

I failed yesterday to mention the Wimbledon tennis final between Alcarez and Djokovic. It was a real thriller, Alcarez eventually coming out on top after five incredible sets. Congratulations also to Rory McIlroy who won the Scottish Open. One meber of the crowd yelled to Rory that he had won £300 on Rory’s win, to which Rory replied ‘I won a bit more than that’.

The Open begins on Thursday, we also have the fourth test of the Ashes starting tomorrow, otherwise I still seem to spend my time looking at the transfer gossip to see if Kane is going to leave Spurs. For the record, I don’t think he will. Spurs take on West Ham in Perth, Australia this morning. Not sure if its on TV here but will be interesting to see how Spurs line up under new manager Postecoglou.

- 13.30 US retail sales

- 13.30 CAD CPI

- 14.15 US industrial production

- 23.45 NZ CPI

- 07.00 UK CPI, RPI, PPI

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