Losing stability

Today's news headlines:

‘UK Economy Probably Entered Its Worst Slump Since Lockdown’. The UK’s latest GDP data, due out this Friday, will likely cause a headache for the incoming Prime Minister and fuel the discussion on whether the Bank of England should retain its independence. The Bloomberg consensus survey forecasts second-quarter growth to shrink by 0.2%, the first contraction since the nation was in lockdown in 2021. The BoE expects the downturn to last until 2024, which has prompted criticism from top Conservatives for the central bank’s failure to control inflation. Both Truss and Sunak spent the weekend promoting ideas to help with the cost of living crisis, with Truss likely to impose greater tax cuts. (Bloomberg)

‘China Extends Military Exercises Near Taiwan With New Drill’. The People’s Liberation Army performed more military drills off Taiwan island on Monday, keeping up the pressure after US House Speaker Pelosi’s visit. The Taiwanese Defense Ministry said it had detected Chinese warplanes and warships around the island, although there have been signs that both shipping and air travel were resuming normal activity. Beijing had denounced House Speaker Nancy Pelosi’s visit after the US pledged 50 years ago not to formally recognise the Taiwanese government. US Secretary of State, Anthony Blinken, characterised the drills as increasingly destabilising action in the region and called for de-escalation with his Chinese counterpart. (Bloomberg)


Today

Following Friday’s bumper Non-Farm Payroll release, gains in stocks and equity futures have paused as markets begin to price in more aggressive US Federal Reserve policy in September. The US Dollar moved higher along with Treasury Yields, with the two and ten-year curve sitting at its most inverted level since 2000.

Events

Japanese Bank Lending y/y: 1.8% vs 1.2% previously (revised)
NZ Inflation Expectations: 3.07% vs 3.29% previously
Eurozone Sentix Investor Confidence: 9:30AM


Interbank rates:

GBP/USD: 1.2100
GBP/EUR: 1.1880
EUR/USD: 1.0185
USD/CAD: 1.2898

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