Lots of data and events this week, expect volatility...

Week Commencing Monday 12th September 2016

 

UK: Bank chief back in Brexiteer's sights

Bank of England chief Mark Carney has defended his actions to mitigate the immediate impact of Brexit on the UK economy.

Speaking at the Treasury Select Committee on Wednesday, Mark Carney said he was “absolutely serene” about the banks preparations for the impact of the Brexit vote. Indeed, he even went as far as saying the “extraordinary preparations” made by the bank cushioned the economy in the immediate aftermath, and will now assist the UK of making a success of leaving the European Union.

Mark Carney appeared to be the only man with a plan after the June vote, immediately seeking to calm markets and reducing the headline rate of interest to 0.25 percent. Despite the harsh rhetoric from leave supporters however, it is unlikely Mr Carney is going anywhere.

GERMANY: Where are all the BMW's?

German exports have fallen sharply in July, seeing their steepest drop in nearly a year as the country grips with reduced global demand.

Exports plunged by 2.6 percent in July compared to June, which was the biggest recorded fall since August 2015 and compares with market expectations for a 0.4 percent rise. The decline was driven by a drop in sales outside the EU, including China and the US, while demand from the UK also fell.

In more bad news for the Eurozone, separate data showed French industrial production declined by 0.6 percent in July on a monthly basis. The country’s manufacturing output dropped 0.3 percent in July, following a decline of 1.1 percent in June.

All in all, Europe appears to be suffering the post-Brexit chill more than the UK at the moment, will it continue?

US: Presidential race getting too close to call!

Things continue to heat up in the US Presidential race, as Donald Trump continues to close the gap between Hilary Clinton.

Recent polls found that in a one vs one contest in Florida, Clinton and Trump are tied with 47 percent support each among likely voters. When third party candidates are added into the fray, Clinton and Trump are still tied at 43 percent. Nationally, the polls have tightened quickly.

In polls conducted over the past week, Clinton has averaged a lead around two points among decided voters. Her lead however was twice as wide in polling done last week, while Trump led in just one of 13 surveys done at the time. As time goes by, Trump seems more and more of a possibility. Scary times indeed!

 

FX Forecast

EUR/USD pushed up on the week, hitting a high of 1.1326. This was just below the 1.1365 level of resistance and has since started to reverse. With this in mind, we expect bias to remain to the downside, with 1.0911 representing the low of the range. CPI in the EZ and Retail Sales in the US will be the key market movers, with a slight uptick expect in the US print. This should confirm the bias until the end of the week.

GBP/USD rose last week but failed to break the 1.3480 barrier and subsequently reversed. It is likely the Sterling will continue to trade this range, especially with Thursday’s retail sales weighing on everyone’s minds. A decent print should push Sterling back to test the 1.3480 range, while Sterling support at 1.3020 should present a worst-case scenario.

GBP/EUR was on its way to 1.20 last week as UK data outshone the continents, however has come to rest at the 1.18 pivot. With inflation data out in Europe and Retail Sales in the UK, this weeks moves will remain data dependent. We expect Sterling to continue to outperform, and bias to remain to the upside. Expect the trading range to remain between 1.1980 on the upside and 1.1680 to the downside.

 

Economic Calander for the Week

UK Data:

We have an interesting week ahead for the UK with inflation on Tuesday, the Claimant Count and earnings on Wednesday and Retail Sales and the BoE on Thursday.

Starting with inflation, we expect a continued uptick in the figure given Sterling's post-Brexit demise impacting import costs. A print of 0.7 percent is expected. Retail Sales is the big one, however a marked decline is expected of -0.4 percent versus last months 1.4 percent surprise print.

The number of people claiming benefits are widely expected to increase marginally on the month, while the Bank of England is not expected to adjust monetary policy. All in all, a mixed bag for the UK economy.

US Data:

Most of the US data is due to be released on Thursday, so this is the day to watch. We are looking forward to both Retail Sales and Core Retail Sales, of which we expect some marginal increases in both of 0.1 percent and 0.2 percent respectively.

The Philidelphia Fed Manufacturing Index is also due to be released, with a shift to the downside widely expected of 0.3 to 1.7 versus last months 2.0 print. Again, a mixed bag however the Retail Sales print should broadly support the Dollar as we move towards the end of the week.

EU Data:

We have a quiet week for Europe ahead, with CPI on Thursday the only release of note. We expect the rate of inflation to remain flat on the month, with a 0.2 percent print widely expected by markets.

Markets will also be watching the ZEW Economic Sentiment print on Tuesday, with any increase of last months 4.6 print likely to stem the Euro's recent reversal versus the Dollar. Lastly, Industrial Production should disappoint as we see -0.9 percent print versus last months healthy 0.6 percent print.

 

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