Daily Market Report 20/07/16

GBP

The Pound fell against a host of its major counterparts after the International Monetary Fund slashed its forecast for UK growth next year after warning that the decision to leave the EU has damaged the British economy’s short-term prospects and “thrown a spanner in the works” of the global recovery.

The IMF, which voiced strong misgivings about a vote for Brexit in the run-up to the EU referendum, said it expected the UK economy to grow by 1.3% in 2017, 0.9 points lower than a previous estimate made in its April world economic outlook. The fund said it had cut its forecasts for the global economy due to the likely knock-on effect of the vote on other countries, particularly in Europe.

Next year, the IMF believes that the UK will experience similar growth rates to Germany – the Eurozone economy most affected by the Brexit-induced slowdown – and France. The update to the World Economic Outlook said there was a risk that the impact of the UK’s decision to leave the EU could prove to be worse than expected. “With Brexit still very much unfolding, the extent of economic and political uncertainty has risen, and the likelihood of outcomes more negative than the one in the baseline has increased,” the fund said.

 

EUR

German economists’ assessment of economic sentiment in Germany has plunged to the lowest level since 2012 amid concerns over “export prospects and the stability of the European banking and financial system” in the wake of the UK’s vote to leave the EU. The German economic sentiment index dived to minus 6.8, down from 19.2 in June and well below economists’ forecasts of a positive reading of 9. This month’s reading is the lowest level since November 2012, and the second largest month-on-month decline of the last 16 years, topped only in 2012.

The index tracking the current assessment of business conditions in Germany fell to 49.8, down from 54.5 in June, according to the closely watched survey conducted by the German ZEW think tank. This was below forecasts of a reading of 51.8. The assessment of Eurozone economic sentiment fell to minus 14.7, down from 20.2 in June. This month’s reading was the biggest monthly drop ever. ZEW President Professor Achim Wambach placed the responsibility for the sharp deterioration squarely on the shoulders of the Brexit vote. “Uncertainty about the vote’s consequences for the German economy is largely responsible for the substantial decline in economic sentiment,” he said.
 

USD

The dollar rose to a four-month high against a basket of major currencies on Tuesday after the release of data showing U.S. housing starts rose more than expected in June, underpinning a theme of strength in the U.S. economy. Groundbreaking on U.S. homes surged 4.8 percent to a seasonally adjusted annual pace of 1.19 million units, the Commerce Department said. After June's jobs report showed U.S. employers added 287,000 jobs, beating expectations by more than 100,000; continued positive data has some investors pricing back in the chances the Federal Reserve will raise U.S. overnight interest rates, analysts said.

 

Key Announcements

09:30 - GBP - Average earnings index 3m/y - forecasted to rise to 2.3% from 2.0%

09:30 - GBP - Claimant count change - forecasted to rise to 4.1K from -0.4K

15:30 - USD - Crude oil inventories – previously -2.5M