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Macro Events & News

Market Analysis

FX News Today

European Outlook: Asian stock markets are mostly slightly higher, with Hong Kong stocks reversing declines after Chinese data which showed better than expected new loan growth in the second quarter and a slightly better overall growth number. U.S. and U.K. stock futures are lower, however, and Bund and Gilt futures will have a chance to claw back some of yesterday’s losses. The BoE’s decision to leave rates steady for now may have been somewhat of a disappointment, but the MPC all but announced further easing for August, so there is room for a correction in yields. The European calendar has the final reading of Eurozone HICP inflation for June, which is expected to be confirmed at 0.1% y/y. The headline rate is finally out of negative territory again, but still far below the ECB’s target and still leaving the central bank sufficient room to act again if necessary.

Strong Chinese Data: China’s GDP grew 6.7% y/y in Q2, slightly better than expected, matching the 6.7% pace in Q1. Separately, retail sales grew at a 10.6% y/y pace in June from the 10.0% clip in May. Industrial production improved to a 6.2% y/y pace in June from 6.0%. Overall, China’s growth rate stabilized in Q2, contrary to fears the economy would see a pronounced slowdown.  All three key data points were ahead of expectations and has dampened expectations that further stimulus will be required. The Shanghai Composite Index fell 0.1%, USDJPY spiked over 106, and AUDUSD moved up to 0.7675 before declining to 0.7630.

US Data Reports: All beat estimates with a firm round of June PPI gains and another tight initial claims reading through the July 4th holiday, hence confirming both the resilience in U.S. inflation and the tight labor market conditions signaled by the last round of payroll data with a likely July boost from this year’s diminished auto retooling effect. For PPI, we saw a 0.5% June headline rise with a 0.8% surge on the old SA basis, with a firm 0.4% core price rise. For claims, we expect a 6k drop in next week’s July BLS survey week reading back to the 248k cycle-low, following two consecutive tight readings of 254k that leave a lean 254k average thus far on the month.

Fedspeak: Esther George (Kansas City) current level of rates is too low and faster wage growth suggests the labor market is returning to normal, said the hawkish voter. That said, she will be looking at the impact of Brexit, which will be around for a while, along with the flight to quality when assessing any impact on the U.S. economy, seen likely to be modest. This should not come as a surprise, given her past dissents against accommodative policy. Atlanta Fed’s Dennis Lockhart endorsed a “cautious and patient” approach as appropriate given the uncertainty around Brexit and low inflation. Though “not a Lehman moment,” Brexit could weigh on business investment and create an income headwind for years to come, though he sees little immediate impact on the U.S. Lockhart still forecasts 2% U.S. growth and “very brisk” consumer spending. He sees the Fed meeting its policy objectives on inflation and employment in 2017, while already near full employment. Overall this is in line with his centrist reputation, as caution is balanced by optimism. No rush to hike, then, but perhaps he would be on board by year-end.


Main Macro Events Today        

  • US Retail Sales – June retail sales data is out on Friday and is expected to show that retail sales remained unchanged (median 0.1%) on the month while sales ex-autos rose 0.3% (median 0.4%). Figures for May had headline retail sales up 0.5% with ex-autos up 0.4%. There is downside risk to the release from weaker vehicle sales for the month and continued sluggish growth in chain store sales.
  • US CPI – June CPI is out today and we expect to see a 0.3% headline (median 0.3%) with the core up 0.2% (median 0.2%). This follows May figures that had the headline up 0.2% and the core up 0.2% as well. The June PPI was up 0.5% on the month while export prices rose by 0.8% and import prices by 0.2%.
  • BOE Carney Speech – Speaking in Toronto about climate change and the financial markets.


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Stuart Cowell

Market Analyst


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