Trouble at No10 and Economic Data Put the GBP in Focus

Earlier in the Day:

Economic data released through the Asian session was on the heavier side, with key stats including June electronic card retail sales out of New Zealand, June business confidence figures out of Australia, and June inflation numbers out of China, with the BRC’s June UK Retail Sales figures also released.

For the Kiwi Dollar, electronic card retail sales rose by 0.8% in June, following an upwardly revised 0.6% rise in May, with the gains coming off the back of increased spending in all six retail industries, according to figures released by Stats NZ.

• Spending on consumables increased by 0.6%, with spending on fuel rising by 1.3%.
• Spending on apparel, including clothing and footwear, increased by 1.5%, with spending on durables increased by 0.5% in June.
• Year-on-year electronic card retail sales increased by 4.9%, while for the 2^nd quarter, the numbers were mixed across the 6 retail industries, leaving electronic card retail sales up by just 0.2%.
• In the 2^nd quarter, spending on consumables saw the largest fall, down 0.6%, following a 1.5% rise in the 1^st quarter, while spending on durables rose by 0.7%, following a 1.4% rise in the 1^st

The Kiwi Dollar moved from $0.68375 to $0.68395 upon release of figures, before rising to $0.6855 at the time of writing, up 0.26% for the session.

For the Aussie Dollar, the NAB Business Confidence Index eased from 7 points to 6 points in June, falling short of a forecasted increase to 8 points. The NAB Business Survey revealed that:

• The business conditions index rose by 1 point to 15 points to continue holding above the long-run average, suggesting that business conditions remained strong.
• Manufacturing, construction, wholesale and finance, business & property services saw improvement in business conditions.
• Mining and transport & utilities saw conditions worsen at the end of the quarter, though mining business conditions remained the most upbeat in trend terms, in spite of the decline, with the retail sector the weakest.
• A strong pipeline of infrastructure work and significant pipelines of housing construction supported the construction sector, which will be of some relief for the RBA.
• On the downside however, the employment index fell for a 2^nd consecutive month, with wage and price measures weak, labour, purchase and final produce price growth all slowing in June, with retail product price growth close to stagnating.
• Capacity utilization increased in June, forward orders fell for a 2^nd consecutive month, while holding above the long-run average.

The Aussie Dollar moved from $0.74775 to $0.74741 upon release of the figures, before rising to $0.748 at the time of writing, up 0.17% for the session.

Out of China, June’s inflation numbers were mixed:

• Month-on-month, consumer prices fell by 0.1%, which was worse than a forecasted 0.1% rise, following May’s 0.2% decline.
• The annual rate of inflation picked up from 1.8% to 1.9% in June, which was in line with forecasts, while continuing to fall short of the PBoC’s targeted close to 3%.
• The annual rate of wholesale price inflation accelerated from 4.1% to 4.7% in June, coming in ahead of a forecasted 4.5%.

Elsewhere, the Japanese Yen was down 0.18% to ¥111.05 against the U.S Dollar, demand for the safe havens easing in the early hours following solid gains overnight in the U.S equity markets, with the U.S Dollar also finding support.

In the equity markets, the Nikkei continued on its road to recovery, supported by a pullback in the Yen and a jump in financial stocks, the index rising by 1.03% at the time of writing, with the Hang Seng up 0.27%, while the CSI300 and ASX200 failed to follow Monday’s gains across the U.S equities, with the pair down 0.17% and 0.38% respectively.

The Day Ahead:

For the EUR, key stats scheduled for release out of the Eurozone includes July’s ZEW economic sentiment figures out of Germany and the Eurozone.

Following improved economic indicators out of Germany of late, concerns over a global trade war and Trump’s recent focus on the auto sector could offset any positive sentiment that would have come off the back of improved economic activity out of the Eurozone.

At the time of writing, the EUR was up 0.3% to $1.1754, with the Germany’s economic sentiment figures the key driver on the data side, while the EUR will continue to be influenced by lingering geo-political headwinds.

For the Pound, economic data is on the heavier side, with key stats scheduled for release through the morning including May’s industrial and manufacturing production numbers, trade data and May’s monthly GDP figure that is being released for the first time, ahead of the NIESR GDP estimates later in the day.

Manufacturing production and the GDP numbers will likely be the key driver through the morning, with stats skewed towards the positive, which should continue to support expectations of a near-term rate hike by the BoE, though we continue to see Brexit and political uncertainty in the UK to remain a consideration for members of the MPC.

Earlier in the day, June retail sales rose by 1.1%, year-on-year, according to the BRC, with World Cup fever and the British heat wave driving consumer spending in the month.

While the numbers were a positive, the BRC noted that sales could weaken once the World Cup has come and gone, with concerns over Brexit and inflationary pressures, coupled with a shortage of everyday goods weighing, as household incomes struggle to keep up with the current pace of inflation.

The Pound moved from $1.32488 to $1.32535 upon release of the figures, before easing to $1.3247 at the time of writing, down 0.1%, with today’s stats, concerns over Theresa May’s position at the helm and Brexit chatter the key drivers through the day, a number of high profile members of the Conservative Party having resigned at the start of the week, pointing to a possible Tory party implosion that could see yet another General Election and an end to a Conservative Party led government.

Across the Pond, key stats are limited to May’s JOLTs job openings, which will have less of an influence than under normal market conditions after last week’s June nonfarm payroll figures, the uptick in the unemployment rate being attributed to a rise in the participation rate, rather than weaker labour market conditions.

The lack of material stats will place greater emphasis Redbook that is scheduled for release ahead of the job opening numbers, though for the Dollar to take a dive, the stats will need to be quite dire, economic data released out of the U.S continuing to impress despite the ongoing trade war.

At the time of writing, the Dollar Spot Index down 0.01% to 94.072, with the Oval Office and sentiment towards the U.S economy likely to be the main influence through the day, concerns over the effect of the ongoing trade war on the economy offsetting upbeat economic data out of the U.S.

Across the border, economic data out of Canada is limited to housing starts and building permit figures, which will unlikely have a material influence on sentiment towards monetary policy ahead of tomorrow’s interest rate decision.

At the time of writing, the Loonie was down 0.07% to C$1.3116, with trade war chatter and sentiment towards tomorrow’s interest rate decision the key drivers through the day.