Sterling still weak
The pound weakened yesterday following the release of the Bank of England minutes from the last MPC meeting that took place earlier this month.
The minutes showed that four of the nine members voted for a rate cut. The pro-change camp argued that revisions to the national accounts at the end of June had made the outlook for the economy become softer. They also noted that output growth had been below trend for three quarters, the recovery for business investment seemed likely to disappoint, and the labour market appeared to be softening.
“Overall, the risks that inflation would be below target in the medium term appeared to have risen”, they said. Make a note in your diaries for August 4th as the day when rates might be cut by 0.25% to 4.50%. As is always the case, the FX markets are already pricing this in with sterling falling to a 4-month low versus the euro and a 19 month trough versus the dollar. The yield curve now indicates that in one year’s time rates will be further below 4.50%.
At 9.30am this morning UK Retail sales for June are due for release. The BRC and CBI surveys gave conflicting messages for June, but the trend is clear, retail sales growth is fast approaching zero. Expectations are for a small rise of sales in June of 0.3% m/m which is not enough to prevent the y/y growth slowing from 1.3% to around 0.8%.
Over in the U.S. a slightly different view on interest rates is being speculated on. Yesterday the Fed Chairman Mr Greenspan made some rather hawkish comments by painting a robust picture of the economy in his semi-annual monetary policy report to Congress. Mr Greenspan foresaw sustained economic growth, suggesting no imminent pause in the Fed’s ongoing removal of monetary accommodation. While inflation is still seen as contained, he spoke of the risks to his central scenario from rising labour costs and energy prices. Worth noting that the Fed also revised up its inflation forecasts from 1.5 to 1.75% in this year and next to 1.75 to 2.0%. Interest rates look set to rise for the foreseeable future.
At 1.30 and 3.00pm our time the US release weekly Jobless Claims and Leading Indicators for June. With the latter expectations are for this to rise by 0.4% - the first increase in 6 months. Much later after European markets have closed the Philadelphia Fed index reading and FOMC minutes from the June 30th meeting are due. With the former expect a rise to a reading of 5.0 from –2.2 the previous month.
The minutes showed that four of the nine members voted for a rate cut. The pro-change camp argued that revisions to the national accounts at the end of June had made the outlook for the economy become softer. They also noted that output growth had been below trend for three quarters, the recovery for business investment seemed likely to disappoint, and the labour market appeared to be softening.
“Overall, the risks that inflation would be below target in the medium term appeared to have risen”, they said. Make a note in your diaries for August 4th as the day when rates might be cut by 0.25% to 4.50%. As is always the case, the FX markets are already pricing this in with sterling falling to a 4-month low versus the euro and a 19 month trough versus the dollar. The yield curve now indicates that in one year’s time rates will be further below 4.50%.
At 9.30am this morning UK Retail sales for June are due for release. The BRC and CBI surveys gave conflicting messages for June, but the trend is clear, retail sales growth is fast approaching zero. Expectations are for a small rise of sales in June of 0.3% m/m which is not enough to prevent the y/y growth slowing from 1.3% to around 0.8%.
Over in the U.S. a slightly different view on interest rates is being speculated on. Yesterday the Fed Chairman Mr Greenspan made some rather hawkish comments by painting a robust picture of the economy in his semi-annual monetary policy report to Congress. Mr Greenspan foresaw sustained economic growth, suggesting no imminent pause in the Fed’s ongoing removal of monetary accommodation. While inflation is still seen as contained, he spoke of the risks to his central scenario from rising labour costs and energy prices. Worth noting that the Fed also revised up its inflation forecasts from 1.5 to 1.75% in this year and next to 1.75 to 2.0%. Interest rates look set to rise for the foreseeable future.
At 1.30 and 3.00pm our time the US release weekly Jobless Claims and Leading Indicators for June. With the latter expectations are for this to rise by 0.4% - the first increase in 6 months. Much later after European markets have closed the Philadelphia Fed index reading and FOMC minutes from the June 30th meeting are due. With the former expect a rise to a reading of 5.0 from –2.2 the previous month.
posted by Drs Search @ 8:55 AM
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