GB POUND
Tuesday the pound weakened against most of its major currency peers as CPI data showed annual Inflation rose to 0.5% in June, an increase of 0.2% since May. Many economists were predicting 0.4%. The last time inflation was this high was November 2014 when it was 1%. The key drivers behind this figure are higher petrol prices, the rising cost of air fares and more expensive computer games.
The IMF have downgraded their forecasts for global growth from 3.2% to 3.1%. The UK also downgraded their forecast from 1.9% to 1.7% for 2016
Wednesday- UK unemployment had fallen to its lowest rate since 2005, forecasted at 5% the figure came in at 4.9%. The pound reacted positively to this news gaining 1% against the US dollar and 1.2% against the euro by the end of the London session.
Thursday- Retail sales data showed consumer spending fell by 0.9% between May and June, experts suggest this was largely down to the poor summer weather rather than “Brexit”
EURO
The fallout from Britain’s decision to leave the EU continues as Eurotunnel has been forced to cut its profit forecast for 2016 by 4.5% to €535m, they have also cut their 2017 profit forecast by 4.3%. The majority of their profits come from vehicle shuttle services, with UK customers making up 80% of its car passengers. Eurotunnel estimate the pound will be 7% lower versus the euro, which would decrease their profits when converted back into euro’s
The big event of the week in Europe was the European Central Bank rate announcement on Thursday. Last March the ECB took an unprecedented step and cut the deposit rate by 10 basis points to a historic low of -0.4% and increased the QE programme from €60Bn to €80Bn a month.
The ECB press conference on Thursday was pretty uneventful, Mario Draghi said “Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience”
German ZEW confidence survey shocked many experts as it fell from 19.2 in June, to -6.8 in July. German economic sentiment is now at lowest since 2012.
US DOLLAR
The US housing market has been making steady progress since the last recession, data this week showed that housing starts had beat expectation posting a reading of 1.19m, the highest since February.
US crude oil inventories fell more than expected with -2.34m barrels drawn down, against the forecast of -2.100m.
Data showed that unemployment claims had fallen to 253k, compared to the forecast of 271k. This was the lowest level in the last 3 months. With all the positive data coming out of the US the Fed will be under even more pressure to do something with rates.
Elsewhere.
The Reserve Bank of Austrailia has kept interest rates unchanged at 1.75%, this caused the Aussie dollar to lose around 1.1% against the US dollar. The decision to leave interest rates unchanged was largely due to the decline in global growth and the impact of Brexit.
Outstanding loans by Chinese financial instiutions to small businesses were up 15.5% by the end of June to 19.31 trillion yuan, by encouraging loans to small businesses China hopes this will shore up their ecomony. Outstanding loans to small businesses accounted for 30.7% of the total of outstanding loans to businesses at the end of June.
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