Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Jul 28 08 07:37 GMT |

Overview & economic commentary The health of the US economy will be under close scrutiny this week, with the publication of preliminary Q2 gdp and the July employment report. An upward revision to consumer confidence data and strong gains in durable goods orders in June helped to allay some concerns last week on the state of the real economy, even though high levels of housing inventories mean a recovery in residential construction is still some way off. However, solid growth in US exports and the tax cut for consumers suggest the US economy probably expanded at least twice as fast in Q2 as in Q1. The upward trend in weekly initial claims tells a more sobering story of ongoing job cuts by US companies at the start of the second half of the year. Weekly claims jumped back above 400,000 last week and point to some deepening of labour market woes. Given the precarious US housing and mortgage market environment, we do not believe that this week's data will tip the balance in favour of a change in US interest rates at the FOMC meeting next week. House prices, consumer and manufacturing confidence are due in the UK this week and will help markets to judge whether economic growth can stabilise in Q3 following the slowdown to just 0.2% q/q in Q2. The CBI distributive trades survey is the first anecdotal evidence of high street spending in July and will indicate whether retail sales can rebound from the 3.9% slump in June. Inflation data in the euro zone is forecast to show a rise in annual CPI above 4% in July. Currency commentary Releases of US Q2 gdp and non-farm payrolls will shed some light on the economy. Our view is that fed funds will stay at 2.0% this year. The dollar struggled to make the most of the fall in crude oil prices below $125pb last week, as market participants continue to harbour doubts about a normalisation in credit and mortgage markets. UK banks start reporting Q2 results this week and this could have some bearing over the direction of sterling. The performance of sterling and banking stocks has been closely correlated lately so any surprises from the banks may well have an impact on global investor appetite for the pound. US Fed voter Mishkin is scheduled to speak today and will present his latest views before the FOMC meeting next week. Antipodean currencies are under pressure as the week gets underway as participants await the outcome of Australian retail sales. The Brazilian real extended gains last week after the central bank hiked interest rates. £/real has threatened to break key 3.12 support. Major data and events today Today German Gfk consumer confidence US speakers: Mishkin Tuesday UK M4 money supply, consumer credit, net mortgage lending, mortgage approvals, CBI distributive trades' survey US house prices, consumer confidence German CPI, preliminary French producer prices Japan job-applications ratio, unemployment rate, workers spending, retail sales UK DMO auction of £2.5bn, 5.0% March 2018 conventional bond WTO general council meeting (to 30 July) Wednesday US ADP employment change German retail sales EU-15 consumer confidence, industrial confidence Canada IIPI, RMPI Japan industrial output Thursday UK Gfk consumer confidence, Nationwide house prices EU-15 unemployment rate US initial claims, Q2 GDP, Q2 GDP deflator, Chicago PMI German unemployment EU-15 CPI Australia retail sales Canada GDP monthly Friday UK manufacturing PMI US non-farm payrolls, unemployment rate, average earnings, average weekly hours, ISM manufacturing index, construction spending EU-15 manufacturing PMI German manufacturing PMI French manufacturing PMI Chart of the day: Is the boom in commodity prices over? 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