Markets Today: I can’t go for that (no can do)

It’s been a busy night in the UK, with PM Theresa May appointing her full new Ministry and of course the Bank of England meeting.

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It’s been a busy night in the UK, with PM Theresa May appointing her full new Ministry and of course the Bank of England meeting.  Would the BoE cut an already ultra-low Bank Rate, announce QE2, or do nothing and review in August when the next quarterly Inflation Report/ full formal forecast update is due? Not an easy decision given the uncertainties since the referendum and the dearth of hard information on the economy since Brexit.  What there has been – such as a special consumer confidence reading and this week’s June RICS house price balance – have been softer but not alarmingly so.

In the end, Governor Mark Carney and the MPC decided to not to cut rates nor announce more QE but consider policy more fully in August when they’ll also have the benefit of more information.  Sterling rallied on the news of no easing, then after a somewhat choppy session, still sits at the top of the major FX overnight leader board, trading at 1.3337, having traded below 1.30 at the start of the week.

The AUD has now re-established a foot hold above 0.76, staging a relief rally after yesterday’s again solid employment report that failed to reveal any cracks in the Australian labour market with annual employment growth to June of 1.9%.  Higher equity prices on both sides of the Atlantic (Eurostoxx 600 index up 0.8% and the S&P 500 closing 0.53% higher) added support to a “risk on” play. US Financials were the stronger performers, benefiting from a well-received quarterly earnings report from JP Morgan.  The VIX volatility index eased to 12.82, the lowest close this year.  Bond yields rose, US 2s by 1.2bps and 10s by 6.1 to 1.5356.  The USD has been mixed, losing ground against Sterling, Euro and commodity currencies but making up ground against the likes of the Yen and CHF.  WTI oil rose 1.68%, base metals were higher by 0.46%, gold eased 0.71%, as did iron ore, by 1.15% to $58.47/t.  There was only second tier us data: jobless claims were rock steady at a low 254K and PPI (ahead of CPI tonight) was ¼% higher than expected.

Fed’s Lockhart and George have both been speaking, but not with especially new perspectives, Lockhart supporting the need for a “cautious and patient” approach.  Even George, who sees rates as too low, was calling for gradual approach.

Coming up

There are some meaty releases coming up in our time zone today with the China activity data and more tonight from the US with retail sales, CPI, and the preliminary July University of Michigan consumer sentiment survey with its survey measure of medium to longer term inflationary expectations. There’s also industrial production, business inventories, and speeches from Fed Presidents Kashkari and Bullard. The Atlanta Fed will release an updated estimate of GDPNow after retail sales (currently 2.3% for Q2).

China focus will be on Q2 GDP, a release that usually comes in pretty close to expectations if not bang on, today’s annual growth (the one to focus on rather than the more volatile and experimental quarter to quarter estimates) is expected to ease back from 6.7% 6.6%. Of equal importance will be the tone of the three activity releases for June, industrial production (expected to ease from 6.0% Y/Y to 5.9%), retail sales (a likewise small moderation from 10.0% to 9.9%), and fixed assets investment, ease from 9.6% YTD 9.4%.  The market will be also interested in some of the detail of these reports and what they suggest about residential construction, infrastructure investment generally, and consumer spending.

Then it’s pretty much onward to this evening’s releases with some initial focus in Europe on the June Eurozone CPI, UK construction output for May (so more colour on this sector in the lead up to the Brexit vote), as well as a speech from BOJ Governor Mark Carney who is speaking in Toronto.

Overnight

On global stock markets, the S&P 500 was +0.53%. Bond markets saw US 10-years +6.30bp to 1.54%. In commodities, Brent crude oil +1.90% to $47.14, gold-0.7% to $1,334, iron ore -1.1% to $58.47. AUD is at 0.7633 and the range since yesterday 5pm Sydney time is 0.7617 to 0.7649.

Good luck.

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