Daily Market Report 19/07/16

GBP

Yesterday, the Bank of England’s Martin Weale signalled that he is not yet ready to vote for an interest rate cut in what will be his final meeting as a member of the Monetary Policy Committee. Weale said there had been no indication that consumers or businesses were “panic-struck” in the aftermath of the Referendum. However, this contrasts with most of the other MPC members who expect a rate cut in August. Also, Chief Economist Andy Haldane on Friday called for a stimulus package including a rate cut.

With Prime Minister Theresa May indicating that she plans to wait until 2017 before triggering the formal EU exit procedure, companies’ investment decisions could be delayed for some time, and consumer confidence may be affected.

Markets have yet to see any major data reflecting the state of the economy since the Brexit vote. The U.K.’s statistics office says that inflation figures due on Aug. 16th will be the first to show how the country is faring since the referendum.

The U.K. is also running a large current account deficit, equivalent to 5.4% of gross domestic product, compared to a surplus across the EU. This is amongst the highest in the developed world, and investors are worried that Britain will face a recession in coming quarters and will find it increasingly hard to finance it’s deficit.
 

EUR

Market participants are not expecting any change in the ECB’s current monetary policy stance at their meeting on Thursday. However, investors are expecting the ECB President Mario Draghi to comment on the possibility of further monetary easing at its September meeting. 

The IMF is due to release it’s update on the world economic outlook today, which should drive investor sentiment surrounding riskier assets.
 

USD

In the Futures market, the odds of the Federal Reserve increasing interest rates by December more than doubled last week to 44%. This comes after U.S. economic reports including retail sales and industrial production signaled improving growth. These odds are up from 15% after the U.K.’s vote to leave the European Union. U.S. policy makers next meet on July 26 and 27.

 

Key Announcements

09:30 - GBP - Consumer Pricing Index is forecast to increase to 0.4%

10:00 - EUR - German ZEW economic sentiment is expected to decrease

13:30 - USD - Building permits expected to increase