Daily Market Report – 16/07/2014

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

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

GBP
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.

USD
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.

Today 
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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