Good morning,
Dollar stronger on data and politics
It was quite nice to have a quiet weekend with the political temperature in Westminster finally been overtaken by the general weather. A week ago Andrea Leadsom was still in the race to become Prime Minister and indeed the old aphorism of a week being a long time in politics has never been truer.
Friday afternoon was characterised by strong and meaningful gains for the US dollar, initially courtesy of better than expected retail sales, industrial production numbers and core inflation readings. These gains were also helped by the news late on Friday of a potential coup in Turkey, prompting a move into haven assets.
Solid news for the US
The strength of the US retail report lifts our expectation around how strong consumption will prove to be in US Q2 GDP while the pick up in industrial production may act as an encouraging harbinger for later in the year. With core CPI, inflation minus food and petrol prices, also rising slowly, the news from the US economy is one of solid if unspectacular strength and the dollar has begun to mirror that.
Turkey story not over
The Turkish lira has rebounded through Asian trade following a 5% fall on Friday night. While the crushing of the coup has brought a hint of certainty to the situation, the 2nd round effect of President Erdogan’s retribution may still add a decent amount of risk to Turkish and Eastern European assets. 2016 has been a year for exogenous shocks and it may sound glib but this is simply the most recent.
Kiwis could cut in August
2016 has also been a year of interest rate action with New Zealand the next central bank that could feel the need to lower its borrowing costs. Q2 inflation only rose by 0.4% on the year and this has pushed expectations of a rate cut at the Reserve Bank of New Zealand’s policy meeting on August 11th to 72%.
We would expect similar pressures on the AUD should Australian Q2 inflation, due on July 27th, also disappoint.
UK data getting ready to tell the Brexit story
While there is a decent lump of UK data due this week, a large amount of it will have been collected before the vote to leave the EU. Tuesday’s inflation numbers are from June and even a beat on the CPI, core CPI or RPI measures is going to struggle to support the pound overly. Wednesday’s jobs numbers are from May and while a decent rally in average weekly earnings is forecast we will be looking for any pre-emptive pressures within the claimant count number or overall employment dynamics.
Thursday’s retail sales announcement is also from May but Friday sees the preliminary release of July’s PMIs from services, construction and manufacturing sectors. This could be the first economic shoe to drop.
The data calendar is quiet today.
Have a great day.