Last week’s July FOMC minutes signalled that a rate rise continues to remain data dependant as many FOMC members are still not convinced the world’s largest economy is performing well enough. The members gave no insight as to if this rate rise could come as early as the next meeting in September, instead the committee showed more concern over how inflation was remaining stubbornly low. This preserved their flexibility of when a rate rise could be seen and saw the Dollar weaken as a result.
From the UK, we had two key releases in the form of CPI and retail sales. Firstly, core retail sales which excludes fuel rose in July, meeting expectations of 0.4%, whilst last month’s reading was also revised higher. Halting Sterling gains was the month-on-month retail sales figure which failed to meet forecasts and posted a slightly disappointing 0.1%. Low inflation and faster wage growth, along with a booming housing market are helping to support consumer spending.
UK CPI also gave the Pound a boost. Price inflation was expected to remain at flat, however the figure exceeded economists’ consensus and posted a 0.1% reading. The target of the BoE is for this to be at 2% and as Mark Carney, the head of the central bank has outlined, he expect prices to start increasing later this year but the latest slide in oil price could hinder this.
Overnight, China’ stocks plunged the most since 2007 as government support measures failed to allay investor concern that a slowdown in the world’s second largest economy is deepening.
Markets today will continue to digest the non-event in China over the weekend. The sentiment continues to be risk off and despite the US being a safe haven currency, the Euro and Japanese Yen are the currencies strengthening from this move. Diverging monetary policies are creating this flight to safety in the Euro and Yen as opposed to the Dollar. On the docket, FOMC member Lockhart is scheduled to speak late this evening.
Germany, the driver of the Eurozone releases its Ifo Business Climate. The economy is beginning to shift into a higher gear and the solid expansion is tipped to continue as external and domestic demand grows. In the afternoon, we gain an insight of consumer confidence in the US.
Core durable goods will be monitored to see if it can continue to increase on the back of last month’s bullish 0.8%. Core durable goods will be the main focus as the reading excludes the volatile aircraft orders, orders which can severely distort the underlying trend.
The Jackson Hole symposium will be keenly anticipated as it provides a platform for Fed officials to opine on the economy. However, the expected absence of Fed Chair Janet Yellen leaves little room for the Fed to explicitly communicate any intention to raising interest rates in advance of its September meeting. In the afternoon, the US releases its second reading of GDP for Q2, forecast at 3.2%
Finally, Friday sees the second and final day of the Jackson Hole Conference. We also have the second reading of the UK’s GDP for Q2, expected to remain at 0.7%.