GB Pound
The pound started the week on the back foot as the markets reacted to the uncertainty surrounding who is going to be the next PM. Monday saw the GB Pound / Euro interbank rate drop to 1.166 however, it did recover later in the day reaching a high of GBP/EUR 1.175.
Tuesday saw Theresa May appointed as the next PM, the appointment came 2 months earlier than expected however many see this as a really positive message. May acted very swiftly in appointing her first cabinet with Phillip Hammond taking over from George Osborne as chancellor, David Davis as the Brexit secretary, but the biggest shock was appointing Boris Johnson as the foreign secretary.
The market reacted favourably to this news and the pound continued its upward trend finishing the day over 2% up against the US dollar and, 2.9% up against the Euro.
On Thursday Mark Carney announced the BOE’s monetary policy committee voted 8 to 1 to keep interest rates unchanged at 0.5%. Many were expecting a 25 basis point cut so this news caught the market off guard and the pound gained 1.3% against the Euro hitting a high of interbank 1.2040.
Euro
A quiet start to the week in Europe. Eurozone industrial production was weaker than expected, 0.5% on an annual basis, a decline of -1.2%
German finance minister Wolfgang Schaeuble voiced his opinions at Ecofin meeting in Brussels, his most noteworthy comment was to ask for Britain to be swift in its exit from the EU.
Eurozone inflation data came out in line with expectations, 0.1% annually and 0.2% on the month.
Irelands economy grew by 26% in 2015 according to revised figures. The key driver thought to be behind this figure is Ireland’s low corporation tax.
EU leaders also met with Chinese officials to broker a deal on steel dumping. European Commission president, Jean Claude Junker met with Chinese President Xi Jinping, who advised that “there is a clear link between steel over-capacity in China and the market economy status in China”
US Dollar
The US dollar continues to benefit from the UK’s decision to leave the EU. There are also clear signs the US economy is continuing to improve. Positive non-farm payroll data came in at 287k against the forecasted 175K. Crude oil inventories were also positive, coming in at -2.5m against the target of -2.3m
US retail sales also showed a healthy increase in June, increasing by 0.6% against the expected 0.1%. This can be seen as another positive sign that the US economy is picking up as consumers are spending more.
The Fed may still issue as many as 2 interest rate hikes this year depending on how the economy evolves said Atlanta’s Fed president Dennis Lockhart. Lockhart said “the U.S. economy on its own is doing well, with growth still anticipated at 2 percent, an improving labour market, and "brisk" consumer spending” he also said he expects the Fed’s 2% inflation and full employment targets to be achieved next year.
Elsewhere.
Mixed news coming out of China. GDP data came out ahead of expectation showing growth of 6.7% in the three months through June, however the balance of trade posted its greatest loss in 4 months at $48.11bn.
The Bank of Canada held interest rates at 0.5% as expected. Canada’s new house price index beat expectation, increasing 0.7% month-on-month compared to the forecasted 0.2%.
Japanese industrial production declined by 0.4% annually and 2.6% for the month. There have been rumours the Bank of Japan was planning on using an unconvential tool of monatery police called “helicopter money” this invloves printing large sums of money and giving it to the the public sector to stimulate the economy, this has been denied by the Japanese chief cabinet secretary Suga.
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