The focus for the UK will remain the ongoing Brexit discussions. UK Brexit Secretary Dominic Raab and EU chief negotiator Michel Barnier met last week and announced that with key autumn deadlines approaching, negotiations will be ongoing. Mr Raab and Mr Barnier will likely meet again this week. Last week, the Brexit Secretary claimed that it was ‘unlikely’ that the UK would leave the EU without a deal. Though, Prime Minister May insisted that the UK could still make a success of a ‘No Deal’ Brexit. The government published around 27 ‘technical’ papers on the consequences of a ‘No Deal’ outcome.
This week’s economic calendar is very light. The GFK consumer confidence measure will be amongst the first indicators of the strength of activity in August. This has fallen over the past two months and a further slide this month would point to some slowdown in GDP growth in the third quarter. Last week, however, saw the UK government finances post the biggest July surplus in 18 years. The CBI industrial survey showed weaker orders in August, though the retail survey showed an increase. Updates on July bank lending from the Bank of England and house prices will provide further insight into demand in the UK. The shop price index from the BRC will also give an indication of whether inflation dipped in August after the rise in July.
GBPEUR – 1.1023
GBPUSD – 1.2885
In the Eurozone, there have been some recent signs that economic activity is starting to pick up after a weak start to the year. Last week’s Eurozone PMIs showed a slight increase in the composite indicator. The German IFO survey could continue this trend. Though it remains below the level at the end of last year, the European Central Bank seems to view the current pace of growth as unsustainably rapid. As such, the ECB is likely to be comfortable with some moderation in growth rate.
Eurozone July inflation is expected to show a slight slowdown in annual headline inflation to 2.0% from 2.1% previously, while the ‘core’ rate is likely to remain unchanged at 1.1%. This is still some way from the ECB’s inflation target of close to but below 2%. This week ECB member Jens Weidmann argued that it was ‘time to begin exiting’ from the ECB’s current position of very expansionary monetary policy. As one of the most ‘hawkish’ council members, those comments are not much of a surprise. ECB Chief Economist Praet speaks today and may take a more moderate line. He may suggest that we see further improvement in the economic data before we see a change in monetary policy.
EURUSD – 1.1689
EURGBP – 0.9072
The big news on the tariff front was the announcement of an agreement on a trade deal between the US and Mexico. This should form a renegotiation of the NAFTA, but discussions are now ongoing with the third member, Canada. By contrast, there is no sign of progress in the talks between the US and China, with low-level talks yielding little progress and President Trump suggesting it is not the right time to talk.
The minutes of the August Fed policy meeting and Fed Chairman Powell’s comments at the end of last week suggest that the US central bank is on course to raise interest rates further. Markets expect a third rise for this year in September, while the likelihood of a further increase in December is around 60%. However, markets are less convinced that the Fed will raise interest rates much beyond that, despite forecasts for Fed policymakers of further hikes in 2019.
In the US, there are also very few data releases of note. The second reading for second-quarter GDP growth is expected to be little changed from the initial estimate of 4.1% annualised growth. Of more significance, however, will be the indications for the strength of third quarter from July’s consumer spending. Retail sales growth, a subset of consumer expenditure, grew by an unexpectedly rapid 0.5% in July, which points to another solid rise in overall spending. The Fed’s preferred inflation measure, the consumer expenditure deflator, will be published at the same time. It is expected to show a further small acceleration in both headline and core inflation.
GBPUSD – 1.2885
EURUSD – 1.1689
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*Interbank rates correct as at 8am on the date of publishing