GB POUND
The pound started the week at 1.1968 against the euro, and 1.3135 against the US dollar.
Tuesday the Bank of England’s MPC member Dr Martin Weale spoke about last week’s worrying purchasing managers index (PMI), which showed that service companies and manufacturing firms have suffered a decline in orders and demand in July.
The report suggests that the UK economy is probably contracting this month, and this means that Dr Weale is likely to vote for a fresh stimulus package, which could include an interest rate cut, at the meeting this week.
Weale told the FT that last Friday’s PMIs were “a lot worse than I had thought” and showed “expectations have worsened sharply”
The markets did not react favourably to this news as the pound lost ground against all the majors.
EURO
A mixed week for the Eurozone. Data showed Eurozone GDP had contracted in the second quarter, for the first 3 months of the year GDP was 0.6%, for the second quarter GDP was 0.3%, however this was still in line with expectations. Year on year the figure was 1.6%, down from 1.7% but still higher than the forecast of 1.5%.
German unemployment fell in June. The seasonally adjusted figure showed that the number of people out of work fell to 2.628m the lowest level since the German reunification in 1990. Many see this as a clear sign the German economy will weather the “Brexit “storm and could even accelerate this quarter.
Good news from Spain as data showed its economy grew by 0.7% quarter on quarter between April and June, despite having 2 elections within 6 months the Spanish economy is moving in the right direction as year on year GDP is up by 3.2%
US DOLLAR
Tuesday we saw lots of positive data coming out of the US. Single family home sales rose by 3.5% in June, the highest level in nearly 8-1/2 years, a positive sign that the US housing market is gaining momentum. The Richmond Fed composite manufacturing index came in at +10 in July, compared with -10 in June. US consumer confidence was also positive, forecast at 95.9 it beat expectations posting a reading of 97.3
Data showed that durable goods orders had fallen 4% month-on-month in June, the largest decrease since August 2014, this follows a 2.8% decline in May. This sign of economic weakness did not sway the Fed to hike interest rates, this is now the fifth time the Fed has decided not to raise rates since December, when it raised interest rates for the first time in nearly a decade.
Oil prices also came under pressure again, after data showed a surprise increase in US crude oil stocks. The US EIA reported that crude oil stocks had risen 0.32% to 521.1m last week, instead of the 2.3m decrease which had been forecast.
Elsewhere.
Japans Prime minister Shinzo Abe was widely expected to respond to “Brexit” shock by announcing the largest ever emergency budget ¥28tn (£200bn), as he looks to steer the worlds third largest economy away from deflation. The Yen has been gaining strengh since “Brexit” as investors look for a safe haven currency to protect their investments however, a strong yen can have an adverse impact on the Japanese economy as it can squeeze exports which can lead to weak inflation and slow growth.
The Bank of Japan did increase stimulus on Friday by doubling it’s annual purchase of exchange traded funds from ¥3.3 trillion to ¥6 trillion, the market reacted unfavorably to this weak move by the BOJ and the Yen gained against every major currency.
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