Big data releases this week...
Week Commencing Monday 14th August 2017
JAPAN: GDP jumps as consumers sentiment rebounds!
The Japanese economy grew in the second quarter at the fastest pace in more than two years as consumer spending and capital expenditure both rose at the fastest rate in more than three years.
GDP expanded by an annualised 4.0 percent in the second quarter, according to official government data, considerably further than the market estimate of 2.5 percent. Compared to the previous quarter, the economy expanded 1.0 percent versus a median estimate for 0.6 percent growth.
Diving into the numbers, private consumption, which accounts for about 70 percent of GDP, rose by 0.9 percent from the previous quarter, beating market expectations of 0.5 percent. Capital expenditure jumped by 2.4 percent in the second quarter, doubling estimates of a 1.2 percent jump. It was not all plain sailing however, with a disappointing -0.3 percent GDP impact from external demand, mainly due to a increase in imports.
UK: The Brit's publish documents ... will the Europeans accept them?
The UK has sought to break the Brexit stalemate as it publishes detailed strategy papers surrounding the next phase of Brexit talks.
Britain is desperate to start talking about its post-Brexit relationship with Europe, wary of the need to reassure businesses, citizens and investors. Brussels, however, has insisted that progress must be made on divorce arrangements first.
Opening rounds of talks with Brussels have seen little common ground, with EU negotiators demanding greater clarity from the British delegation. The EU has warned that an already-tight timetable could be delayed ahead of a scheduled March 2019 exit. Britain said it was preparing to publish several papers, including plans for a new customs arrangement and a proposal on how to resolve the difficulties of a physical border between Ireland and Northern Ireland. With the next round of talks due to start at the end of this month, there is much riding on these three individual documents.
The faster consensus can be reached, the better general UK and Sterling prospects become. The decision to announce the publications indicates Britain's desire to counter criticism from Brussels about its approach to the talks. In July, EU officials said progress was difficult not because Britain had unacceptable demands, but because it had no position at all on many issues.
Sterling (GBP) - Sterling continue to struggle versus both the Euro and US Dollar as fundamental economic data points further south. Having broken the 1.10 level against the Euro, we see further declines to the 1.08 range this week. The Dollar found some beans over the weekend, pushing back at recent GBP gains to a new sub-1.30 range. We expect this to continue, especially if we see weak Retail Sales numbers on Friday.
US Dollar (USD) - The Greenback has seen some reversal in fortunes versus most majors, with Sterling being pushed back below 1.30 and 1.17 back on the radar on EUR/USD. With the FOMC on the radar this week, any hints of further monetary policy tightening will likely provide more USD strength, potentially seeing new ranges against most majors.
Euro (EUR) - The Euro continues its reasonably robust form, with it holding its own versus most majors. We are likely to see further gains versus Sterling as we draw closer to the next round of Brexit negotiations. CPI is the only release of note and is unlikely to shift sentiment unless we see a print widely off the mark.
Economic Calander for the Week
We have a busy week for the UK with Inflation and Retail Sales the key drivers of market activity. We expect inflation to edge up from the 2.6 percent printed last month, potentially hitting 2.7 percent for July. On Wednesday we have both the Claimant Count, which we expect to increase by 3.7k while average earnings should continue to push up by 1.8 percent. Finally, Retail Sales will be the highlight, with a disappointing 0.2 percent print widely expected on Friday.
We have a busy week for the US with Retail Sales kicking off the week on Tuesday. We expect to see sails return to normal from last months -0.2 percent prints. For Core we expect a 0.3 percent number this month while non-core should come in slightly higher at 0.4 percent.
The FOMC highlights on Wednesday and any hint of a more aggressive monetary policy tightening will likely send the Dollar skyward. Meanwhile, the Philly Fed Manufacturing index on Thursday should see some marginal declines on the month, posting 18.5 versus last months 19.5 print.
In Europe we have the all important inflation numbers on Thursday, where we expect to see a continuation of the 1.3 percent numbers for July. Outside this, obviously further Brexit related news will likely impact both EUR and GBP sentiment moving forward.