Give us a minute
Within the past day or so both the European Central Bank and the Federal Reserve released the minutes of their most recent rate-setting meetings. For the Fed, the proximity to the Jackson Hole Economic Symposium at the end of August means the market will be eyeing speeches later in the month for current policy thoughts rather than a stale month-old summary of views. The minutes clearly showed there’s an element of discord among the rate-setting committee on the trajectory of inflation and therefore policy, but those differences aren’t stark enough for the market to question the ultimate destination for rates and the bank’s balance sheet. Asset sales are still seen as being announced in September, with a tangible chance of at least one rate rise before the end of the year.
Over in Europe, the conversation among the ECB was one of currency, not interest rates. EUR/GBP sits close to 8 year highs at present and the central bank’s becoming concerned over the impact this will have on the Eurozone and, particularly, inflation. The implications for the currency area’s trade balance is clear: as the currency appreciates, imports become cheaper and exports become less competitive, leaving Eurozone businesses in a quandary. Markets now look to Draghi’s appearance at Jackson Hole, where recent reports have suggested he could steer clear of hinting that the bank will pull back from their asset purchase programme anytime soon.
UK retail sales look rosy, but nerves ripple just below the surface
July’s retail sales figures rounded off Q2 with 0.3% gain – slightly ahead of expectations – and rounds off an unspectacular quarter and first half to the year for the consumer. For marketplace and online sellers, recent outperformance has allowed the sector to clock growth of over 15% over the past twelve months, but that growth is slowing; should negative real wage growth extend into the second half of the year, we expect double digit growth numbers to come under threat from a pressured consumer. The mixed outlook was enough to hold back the pound from gaining too sharply.
The day ahead
Both Kaplan and Kashkari of the FOMC speak this morning, but neither are likely to waver too much from the rhetoric of yesterday’s minutes. Both this morning’s jobless claims figures and industrial production were uneventful with markets continuing to focus attention on the Oval Office. Trump disbanded two industry councils yesterday in response to the haemorrhage of CEOs seeking to distance themselves from the poorly received speeches earlier this week. Trump’s turn on business is yet to make a significant impact on the business community – but should he fail to follow through with tax and corporate reform, it could be just a matter of time.
Have a great day.