Today’s macro highlights:
Brexit breakthrough lifts Sterling
Yesterday afternoon we saw the surprise news that Brexit planning was being removed from DexEU - the government’s department for exiting the EU - and would instead sit with the Cabinet Office (in other words, the Prime Minister). Leaving aside the back story, markets embraced this news as being positive for the UK reaching at least something of a deal over the country’s split from the EU, leaving the Pound to gain ground against both the Euro and Dollar as a result. A steady stream of positive communications from here on could enable Sterling to post further gains as we head into the summer.
In terms of yesterday’s economic data, there were few surprises here with generally mixed numbers coming from the EU, UK and US releases. The market has one eye very much on how monetary policy will play out for each of the three respective central banks - there was arguably nothing to change expectations in the data yesterday, although that change of tack over Brexit may be sufficient just to give the BoE the confidence it needs to make the jump next week.
9am BST sees the release of the German IFO Expectations for July. Again, as a forward looking indicator this takes on added significance in terms of providing clues over the next steps we’ll see from the ECB. A modest decline month on month is expected, so anything that sees this reversed may be sufficient to lend support to the idea that Mario Draghi may be close to throwing the switch on shutting down the last round of QE. Regardless, it’s still a long time - at least a year - before we’ll expect to see interest rates starting to rise in the Eurozone, so even a positive print here may struggle to deliver lasting support to the common currency.
11am BST sees the release of more CBI data from the UK, with reported sales very much set to be in focus. This gives a short term view of trends in the country’s retail and wholesale sector and as we’ve seen, after a marked bounce back following the cold winter, the World Cup and exceptionally hot start to summer has kept consumers out of stores. As such a month on month decline is expected, although it’s worth bearing in mind the June figure as forecast to be 10 and overshot significantly, coming in at 32. Markets are expecting to see a print of 15 today, which in the longer term context should still be seen as a positive.
One reading from the US worthy of note today is the new home sales print for June. Existing home sales slumped into negative territory on Monday and the expectation is that this number will do the same. Although the dollar is unlikely to react off this one print, it does point towards growing inertia as consumers face up to rising interest rates and rising inflationary pressures. A marked decline could be seen as something of an early warning that bigger problems may lie ahead.
The pair is now trading around two cents higher than last week’s lows and some properly choreographed messaging from government over Brexit, plus anything that adds to the idea of the Bank of England delivering on a rate hike next week could see these gains extended in the short term.
Yesterday proved to be very quiet for the pair which is sitting essentially in the middle of its range for the last two months. Positive signals over the ECB tightening monetary policy may have the potential to limit further downside pressure.
The Pound has now recorded three consecutive days of gains over the Euro, drawing the pair well away from those multi-month lows of last week. Confidence over Brexit, a BoE rate hike and anything that knocks the ECB’s timeline for policy tightening could create the perfect storm to see the Pound bolstered.