Brexit negotiations appear to be making progress. More positive comments have shifted expectations to an agreement being reached by the November summit. Even if this timetable doesn’t slip further, there will still be a number of hurdles, including passing through parliaments. There is scope for further progress this week with the informal EU Summit on Thursday. Prime Minister May is expected to address the other EU leaders on her Chequers proposal.
As expected, the Bank of England meeting and decision last week was a rather boring affair. There were no changes to policy or forward guidance. The BoE slightly upgraded their forecast for third-quarter growth to 0.5%. We may get further insight into the Bank’s thinking as voting member Andy Haldane speaks on Wednesday.
Last week, GDP growth for July was moderately better at 0.3% monthly increase. There was further evidence of supply pressures, with wage growth increasing by 2.9%. This week’s data could well add further momentum to the recent numbers. On Wednesday, we expect inflation to be stable at 2.5%, though the core measure may have fallen slightly. It is likely that retail sales will have fallen back after a strong month.
GBPEUR – 1.1243
GBPUSD – 1.3079
The European Central Bank meeting last week also proved to be an unexciting event. While the Bank of England was slightly more positive, the ECB revised growth down for 2018 and 2019 and kept inflation forecasts unchanged. ECB net asset purchases are on track to reduce to EUR15 billion in October before falling to zero next year. This week the Swiss and Norwegian central banks also have their meetings, with no change expected from the SNB, and a 25bp increase to 0.75% expected from the Norges Bank. The Bank of Japan will meet for its policy update, without any immediate change expected.
Last week, Eurozone industrial production was weaker than expected. This week we will see whether the PMI readings provide some further colour. Expectations are for services and manufacturing readings to be broadly unchanged, and showing moderate growth around the 54.5 area. Though data in July was weaker than expected, it points toward a similar growth rate to the second quarter of around 0.4%.
There remain concerns around emerging market contagion and trade tensions, with ECB president Draghi highlighting rising protectionism as a major concern. Mr Draghi speaks at events several times this week and further comments about the economy and future path will be watched for further information, alongside the EU Summit.
EURUSD – 1.1633
EURGBP – 0.8894
The escalation of trade tensions has seemed continual over the summer. This looks set to continue with President Trump’s comment that he is in no rush to end the trade war. Despite fresh trade talks and the fact that additional tariffs have not yet been levied, this week started with the US saying that additional tariffs will be introduced, perhaps at a lower 10% level instead of the 25% originally cited.
The dollar has been softer over the last week, with a weaker-than-expected inflation reading which saw US Treasury yields fall. Despite economic data suggesting that the economy is very healthy, US retail sales were weaker than expected and housing data continues to point to a sluggish market. Housing starts last week were lower for the second month, whilst existing home sales have been falling since March. We will be seeing if existing home sales continue this trend on Thursday.
Otherwise, attention will likely be on headlines around Hurricane Florence. From experience with Hurricane Harvey in Texas last year, the local impact could be very serious. The local costs will no doubt be very high. With the midterm elections approaching, the burden of this cost will be an important question, with perceptions around the Federal Government’s response having greater importance.
GBPUSD – 1.3079
EURUSD – 1.1633
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*Interbank rates correct as at 8am on the date of publishing