Daily Market Report – 16/07/2014

GBP-EUR is now trading at a three and a half year high

UK inflation rate has jumped to 1.9% in June much higher than expected and is up from 1.5% in May. Inflation was driven up by a rise in the price of clothing, food & non-alcoholic drinks and air transport sectors. Inflation is now close to the Bank of England's 2% target however It has remained below target for seven consecutive months.

The Pound jumped up nearly half a cent against the US dollar as the news further fuelled expectations that the Bank of England will start raising interest rates sooner rather than later.

In a speech yesterday Mark Carney stated that the UK housing market is the biggest risk to the UK's economic recovery in the medium term. The Bank's biggest fear is that lenders become too reckless granting loans that are too risky, leading to too much indebtedness.

Carney also did concede people have a great record of repaying their mortgages however that means they slash spending on everything else as interest rates rise, hurting the wider economy.

US retail sales rose by just 0.2% in June,missing economists forecasts of 0.6% after automobile makers reported a surprise drop in demand.

Some economists said details in the report showed that consumers are generally spending more freely compared with the winter and that the economy appears to be slowly gaining speed. As the weather warmed in the spring and more Americans got jobs, retailers saw business conditions pick up.

The Empire Manufacturing survey which monitors factories based in and around New York has surged ahead of expectations to a four year high. The index jumped to 25.6 this month, up from June's 19.3, to the highest level since April 2010. It bolsters hopes that America's economy is recovering, having suffered a contraction in the first three months of 2014.

Later on in the afternoon we had US Federal Reserve Chair Janet Yellen told lawmakers in Washington that the central bank must continue with monetary stimulus as “significant slack” remains in labour markets and inflation is still below the Federal reserve Target of 2%

Yellen said today that interest rates are likely to stay low for a considerable period after bond purchases end, which she indicated could happen following the Fed’s October meeting.

Overnight, we have seen that the Chinese economy grew faster than expected last quarter, at a rate of 7.5%. Retail sales also rose 12.1% year on year, and industrial production gained 9.2%.Whilst the Chinese economy remains fragile this data positive news for the worlds second largest economy. 

The focus in the UK is on unemployment and wage growth with many economists expecting it to fall from 6.6 to 6.5%. However it is unlikely that wage growth will pick up significantly meaning real wages are still falling once adjusted for inflation.

Key Announcements:
09:30 BST- GBP- UK unemployment Rate (May) Expected to fall from 6.6 to 6.5%
09:30 BST- GBP- UK Unemployment claimant count Expected to fall to 27K
13:30 BST- USD- Producer Price Index (June) higher to at 0.2%
14:15 BST- USD- Industrial Production (June) expected to fall to 0.4%

*BST Denotes British Summer Time

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