Sterling hurt by weak retail sales

• UK retail sales worse at -0.2% 
• Troika to meet Greece to discuss third bailout
• Chinese PMI weak at 48.2 – AUD, gold, oil lower
• South Africa raises interest rates to 6% from 5.75%. 

In the UK, the only data that we had was worse than expected with retail sales -0.2% month on month against expectations of growth of 0.3%.  This was the slowest growth since September 2014 and was badly received by the market with sterling sliding by over 1% since the news. In reality, sales volumes were still solid, though the lack of acceleration to above trend rates does highlight the uncertainty that still surrounds the timing of any move in rates.

Greece tries to get back to normality

There are still rumblings from the ECB about tackling Greece’s debt load as we continue to move forwards with the negotiations of the third bailout terms with the Troika expected to meet with Greece today. The details need to be agreed before the 20th August when the next ECB payment is due. A decision will also be taken on whether to reopen the stock market which would be a further sign of a return to normality.

PMIs across the board

In the US, we had the lowest level of initial claim since 1973 at 255,000. There is a tendency for auto plant shutdowns to adjust this number, but even so, it’s not often you get to reference a low over that period and again will add to the pressure on the Fed to move on rates, and the market expectations of a move. The only real data of note today is the manufacturing PMI, expected to show solid growth well above 50 (53.6).

German manufacturing PMI this morning came in at 51.5 with services at 53.7.  French manufacturing PMI dipped into contraction at 49.6, but the overall European number is expected to show stable growth at 52.5, with services expected at 54, with the European easing seemingly continuing to have a positive impact on the European economy, despite the Greek situation.

Overnight Chinese PMI came out far worse than expected at 48.2 (49.7) indicating further contraction. The S&P commented that they could lower the Australian rating if budgetary performance does not improve. The Aussie dollar continues to slide on the back of this demand outlook along with gold and oil, with the AUDUSD rate now below 0.73 for the first time since 2009.