The ability of US markets to shrug off the political theatre playing out in the latest chapter in the Trump presidency continues to surprise, however it is becoming clear that the US President is almost becoming a parody of himself, disbanding his business advisory councils in a fit of pique after several CEO’s quit in the wake of events following Charlottesville.
The US president also found the time to lash out at Amazon for “doing great damage to tax paying retailers” on Twitter in what was probably a calculated jibe at Amazon founder Jeff Bezos, who owns the Washington Post, a paper which has been highly critical of the President, though to be fair the list on this count is quite long.
We saw a another decent day for European markets yesterday helped in no small part by a report citing European Central Bank sources that ECB President Mario Draghi would not be making any references to monetary policy at next week’s Jackson Hole annual central bank symposium.
This helped push the euro towards its lowest levels this month against the US dollar, while helping support European stocks.
Speculation had been building that we might get an early steer on the ECB’s intentions with respect to the slow winding down of the banks €60bn a month stimulus program. The report went on to say that any discussion would have to wait until the autumn, which suggests that we may well have to wait until the October meeting before the ECB looks at showing its hand, on the timing of any tapering program.
We may still get some clues from today’s release of the most recent minutes of the last ECB meeting, which are released just over 2 hours after the final iteration of the latest EU CPI numbers which are expected to be confirmed at 1.3% for July.
It seems clear from last nights Fed minutes that while there are divisions on the timing of when to pull the trigger on the next rate rise, there does appear to be some sort of consensus forming on starting to reduce the size of the US central banks $4.5trn balance sheet, which could come about with an announcement at the September meeting.
On the subject of when to push rates higher, these divisions shouldn’t really have been a surprise given the various briefings from several FOMC policymakers in recent weeks, from Neel Kashkari of the Minneapolis Fed and James Bullard of the St. Louis Fed on the dovish side, as well as William Dudley of the New York Fed and Robert Kaplan of the Dallas Fed who lean to the hawkish side.
It is clear that the weak inflation numbers are giving some FOMC members serious pause for thought, particularly since the Feds preferred measure of PCE is lower now at 1.5% than it was at the beginning of the year, and as such it is highly unlikely that we will see interest rates move again until December at the earliest.
On the UK economy there was better news with unemployment falling to a new 42 year low, while wages edged higher for the second month in succession, this time coming in at 2.1% for the three months to June. When combined with CPI coming in at 2.6% earlier this week, the squeeze on consumer incomes has come in from 1.2% in April to 0.5% now. While it may be premature to get too optimistic there does appear to be some evidence that even if wages don’t move too much higher from here, the fall in inflation alone might well do the job in alleviating the wage squeeze in the coming months.
The squeeze on consumer incomes has been particularly apparent in this year’s retail sales data which got off to a poor start in Q1, but did improve somewhat in Q2, with a decent rebound at the end of the quarter. As Q3 gets underway there is some optimism that the July numbers will also show an improvement, if last week’s BRC retails sales numbers are any guide. They do tend to act as a leading indicator to the official numbers, and show a modest improvement last week, with today’s retail sales numbers expected to show a rise of 0.2%, down from June’s 0.6%.
EURUSD – continues to find support just above the 1.1680 area but it needs to overcome the 1.1850 area, or risk the prospect of a deeper move lower towards 1.1620. We still remain on course for a move towards the 1.2000 area, as long as the 1.1620 level holds in the short term.
GBPUSD – the pound has found it difficult to rebound, currently capped at the 1.2930 area, and slipping down to the 1.2840 area yesterday. It has so far managed to hold above the 100 day MA and the July lows at 1.2810. A move back above 1.2930 is needed to stabilise and retarget the 1.3040 area.
EURGBP – continues to edge higher as it looks to head towards the November 2016 peaks at 0.9300. Support remains down near the 0.9040 area and below that at the 0.8980 area.
USDJPY – the US dollar has had a decent rebound in the last two days from the 108.70 area but we need to move beyond the 111.30 area to suggest a wider move towards 113.00. While below the 111.30 the risk remains for a retest of the recent lows.
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