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UK jobless claims change June 0.4k vs 3.5k exp
Latest UK labour market report now out 20 July 2016
BNPP Revised Its Fed Call From No Hike Through 2017 To A Hike As Soon As September
The market is too complacent about the US Federal Reserve. Better data of late and an easing of financial conditions have prompted us to revise our Fed forecast.
We now see a rate hike as soon as September, with a small chance of an increase in December as well. A sharp weakening of risk markets could challenge our view, however.
Softer consumer spending over the next year as real wage growth slows will likely result in growth of only 1½% in 2017. We don’t see the Fed hiking further against such a backdrop.
The next steps towards a hike should be a more upbeat FOMC statement, a more hawkish set of minutes and speeches saying risks have diminished. Data will decide the timing.
UK Retail Sales Dip More Than Expected in 'Brexit Month'
UK retail sales dropped in the 'Brexit month' on a monthly basis after two consecutive months of growth, the Office for National Statistics (ONS) announced on Thursday.
Consumer shopping appetites fell 0.9% in the sixth month of the year on a month-on-month basis, while on an annual basis consumer spending at retailers rose 4.3%.
Growth in volume of retail sales slowed in June, driven by lower clothing and footwear sales which were down 1.8% on the month and 6.1% on the year. This drop in activity was explained by the adverse weather witnessed in June.
Analysts had predicted a 0.3% dip of the indicator on a monthly basis.
The ONS also published the reading of the index excluding volatile prices of fuel, with the indicator sinking also 0.9% on a monthly basis, but posting a strong climb of 3.9% year-on-year.
The country has reported two other important macro indicators over the last two days, with the inflation rate rising marginally over expectations and the jobless rate posting an 11-year low.
Completing the data for Q2, June's outturn meant that the volume of sales rose by 1.6% between Q1 and Q2, with the contribution of retail sales to second quarter GDP standing at 0.1 percentage points.
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UK gets a one-off post-Brexit special PMI today
Markit will be releasing a special flash PMI reading this morning at 08.30 GMT 22 July
Further to my post last week just a heads-up on this one-off reading today.
The readings will be based on 70% of the normal responses over a slightly shorter period of time.
Given the current market fragility you can be sure of some action if the release is wide of expectations. Remember that the services sector is the key one given its large contribution to UK GDP
Forecasts are:
GBPUSD currently 1.3244 after an early bit of short covering to 1.3260.
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Sterling Drops 1% as Economic Activity Nosedives In July
According to the latest UK release, the flash manufacturing PMI for July dropped to 49.1 points from 52.1 scored previously, while the services gauge plunged to 47.4 points from 52.3 in June.
Sterling cratered around 150 pips after these disappointing numbers and was seen trading close to the $1.31 mark, some 0.95%% weaker on the day.
The results of these PMIs could weigh more on sterling in the near term, if the market anticipates downbeat data to force the Bank of England’s hand at its next meeting in August.
In the previous session, UK retail sales for June decelerated to 4.3% year-on-year, from 5.7% scored in May. The monthly change dropped to -0.9%, down from 0.9% previously. Both numbers came in well below market expectations.
Moreover, the ex-auto fuel gauge slowed to 3.9% y/y and to -0.9% month-on-month. Sterling dropped in the initial reaction, but managed to erase all losses later in the day.
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UK press - biggest companies issue most Q2 profit warnings since GFC
The UK Telegraph over the weekend with "Britain's biggest companies have issued the highest number of second-quarter profit warnings since the financial crisis"
GBP/USD: Sterling Rises Amid Positive Sentiment
Cable was seen moving higher during the London session on Monday and was trading 0.25% higher at $1.3140, as investors are trying to erase Friday's big decline.
"Later in the day, the latest industrial orders data for July will be closed scrutinized in light of last week’s disappointing flash manufacturing and services PMI data. This is expected to see a decline of -6 from -2, though there is a risk it could come in worse, however as with last week’s flash PMI’s it is important not to read too much into a single disappointing month," Michael Hewson, chief market analyst at CMC Markets UK, said on Monday.
On Friday the flash manufacturing PMI for July dropped to 49.1 points from 52.1 scored previously, while the services gauge plunged to 47.4 points from 52.3 in June. The disappointing data sent the pound lower and it dropped 200 pips against the greenback.
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GBP: Expectations for BoE Easing Continue to Build
The sharp drop in confidence was also evident yesterday in the release of the latest CBI survey which revealed business optimism plunged by 42 points to -47 in July reaching its lowest level since the low from the global financial crisis in January 2009.
Heightened uncertainty following the Brexit vote has provided a significant initial negative shock to business confidence in the UK. It is helping to encourage speculation that the UK could adopt a compromise option when leaving the EU whereby it could enter the European Economic Area for a transition period, which has been described as a potential “safe harbour” where it could work out a bespoke long-term solution. The Adam Smith Institute has proposed that participation could be a “compromise position for the short to medium term” by setting a time limit when it would review its place in the EEA.
The advantages for the UK would be that it would formally leave the EU honouring the referendum decision, and protect access to the single market over the medium-term. Once inside the EEA, the UK and EU would then have plenty of time to try to agree a bespoke long-term trade deal which couldn’t be concluded within the two-year Article 50 time frame. It would also provide more time for the UK to reach trade agreement with non-EU countries which could begin once outside of the EU. However, the ability of the UK to control the movement of labour would still be limited within the EEA although greater than within the EU. It could prove an attractive transitional arrangement for the EU as well by helping to minimise economic disruption. There is no indication that government policy is heading in this direction but it would likely be looked upon favourably if adopted in a timely manner which would provide support for the pound by helping to ease uncertainty.
Q2 2016 UK preliminary GDP 0.6% vs 0.4% exp q/q
Details from the Q2 2016 UK preliminary GDP data report 27 July 2016
Only about a third of the full data used is available in this report, the rest is estimated. You'll remember that the UK had a good couple of months Apr/May, particularly in manufacturing.
It hasn't taken long for the hot air brigade to pipe up and finance minister Hammond says that the data shows that the fundamentals of the British economy are strong and that along with the BOE, the Treasury will take whatever action is needed to support the economy. Let's see what his reaction is over the data in Q3 as that will tell us about the effect of Brexit. So far it's not been off to a good start.
The pound is looking through these numbers as it knows the real issue is the data since Brexit. GBPUSD flapped around in a 40 odd pip range between 1.3100 and 1.3140. EURGBP did about the same between 0.8390 and 0.8350.
Back to the data, and as I mentioned, the ONS say that the data was boosted by the strong industrial output, and services in April. IP had its strongest quarter since Q3 1999.
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UK House Prices Keep on Rising in July: Nationwide
The first month after the UK's EU referendum failed to show any signs of weakness in the UK housing market, as the Nationwide house price index accelerated in annual terms in July.
UK house prices increased by 0.5% in July and, as a result, the annual rate of house price growth was little changed at 5.2%, compared with 5.1% in June according to Nationwide.
The Nationwide house price index is constructed in a way that uses data at the mortgage offer stage and therefore may not fully reflect the impact of the EU referendum.
"We use data at the mortgage offer stage – this means any impact from the vote may not be fully evident in July’s figures, as there is a short lag between a buyer making the decision to purchase a property and applying for a mortgage," Nationwide said in the report on Thursday.
Economist expect the increased economic uncertainty to weaken demand for homes. Household confidence also fell sharply in the wake of the referendum result, making major purchases less likely.
"How the labor market evolves will be crucial in determining the demand for homes in the quarters ahead. It is encouraging that conditions were robust in the run up to the vote, with the unemployment rate falling to a ten-year low in the three months to May. The decline in long term interest rates to new all-time lows in recent weeks should also help to keep borrowing costs low and provide some support for demand," the report further noted.