Daily Market Report 27/07/16

GBP

The Bank of England is almost certain to cut benchmark borrowing costs when it sets policy on Aug. 4, but a slim majority of economists in a Reuter’s poll said it would hold off for now on restarting its asset purchase programme. All but three of the 49 economists surveyed since Friday expect the Bank to cut at least 25 basis points on Aug. 4 from the already record low 0.5 percent it has sat at since early 2009. The median forecast was for a cut to 0.25 percent. While 17 of 36 said the 375 billion pound quantitative easing programme that was wound down in 2012 would also be restarted by the MPC next week, 19 said it would not. A Markit/CIPS PMI published last week showed its biggest drop in its 20-year history following the Brexit vote, and other similar surveys have pointed sharply in the same direction. That has made it seem more likely for many that Britain's economy will slide back into recession in the coming year. A Reuter’s poll published last week showed growth predictions were already being cut across the board.

USD

The U.S. Federal Reserve is expected to keep interest rates unchanged this week, deferring any possible increase until September or December, as policymakers hold out for more evidence of a pickup in inflation. Central to the debate at the Fed's July 26-27 policy meeting will be how to reconcile upbeat U.S. economic data, highlighted by strong job gains in June, with a global growth slowdown and other headwinds threatening the inflation trajectory. San Francisco Fed President John Williams, one of the 17 members participating in the central bank's rate-setting deliberations, all that is needed is a bit more confidence that inflation is indeed headed towards the Fed's 2 percent target. The inflation measure the Fed prefers to track is currently at 1.6 percent. However with monthly job gains well above the level needed to prevent an uptick in unemployment, and no signs of a rise in productivity, some Fed policymakers are likely to argue for a quick increase in rates to avoid a surge in inflation. Other policymakers, like influential New York Fed President William Dudley, have signaled they would rather wait for more tangible signs of a rise in inflation before pulling the trigger on a rate increase.

EUR

The export expectations of German manufacturing firms weakened in July, partly due to concerns relating to Britain's vote to leave the European Union. The drop came after export expectations in the manufacturing sector rose in the two previous months. In particular, the automobile and metals industries felt more pessimistic about prospects for their exports in the next three months, the survey of around 2,700 industrial firms showed. Chemical firms only expect slow export growth but engineering firms and companies in the electrical sector expect to get extra impetus from abroad.

Key Announcements

09.30 – GBP - Prelim GDP Q/Q, expected to rise to 0.5% from 0.4%

13.30 - USD - Core Durable Goods orders M/M, expected to rise to 0.3% from -0.3%

15.00 – USD - Crude oil inventories, expected at -2.1M against previous of -2.3M

19.00 – USD - FOMC statement

19.00 – USD - Federal funds rate , expected to remain at <0.50%