Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Aug 12 08 06:53 GMT |

Overview & economic commentary

Key data for release today includes July UK CPI, RPI and RPIX price inflation. Cuts in petrol pump prices may have offset higher utility bills leading to no change on the month, but on an annual basis, CPI inflation is likely to have risen by 4.4% in July, up from 3.8% in June. Both RPI and RPIX (excluding mortgage interest payments) price inflation could exceed 5% for the first time since 1991/2. In addition, following the overnight publication of the RICS house price survey, which showed a slight improvement in the price balance to -83.9 from -86.9, DCLG (official) house prices may have grown by an annual 1.5% in June compared with 3.5% in May. Official house prices have shown less deterioration than the Nationwide and Halifax figures which show close to 10% annual declines. Prices supplied by mortgage lenders are based on mortgage approvals rather than actual completed deals, so they may over-state house price declines. Also overnight, the BRC retail sales monitor, giving an indication of retailers' own view of sales, stayed weak, but official retail sales figures still show annual like-for-like growth of 1.7%. In the US, June's trade deficit may deteriorate to -$61bn compared with -$59.8bn in May, due to higher import costs (including oil) offsetting export growth. The US Treasury statement is also published. Overnight in Japan, domestic corporate goods prices showed growth of over 7% in July, while industrial output for June was confirmed at -2.2%.

Currency commentary

The dollar continued to advance overnight against other major currencies. £/$ slipped below 1.9000 support on weak BRC and RICS surveys and ahead of pivotal UK CPI data at 9.30. Next technical support level runs along 1.8800. We've scaled back our CPI forecast to 4.4% from 4.6% following the development in oil prices, but uncertainty about where inflation will peak should keep the BoE in a non-conciliatory frame of mind when it discusses the outlook for prices and growth tomorrow. The pre- Inflation Report positioning could slow the pace of decline in sterling, with 2yr gilts finding support at 4.75%. €/£ sits on a major support level at 0.7800. The jump in 1-mth vol to 7.46 should keep participants on alert for a potential breakout in spot. The rout in oil and other commodity prices continues unabated and still favours short positions of oil as speculative longs are unwound. $/C$ and A$ and NZ$ are likely to stay out of favour as the 'de-leveraging' from the commodity complex takes place.

Major data and events today

* UK BRC retail sales monitor (Jul) (00:01)
* UK RICS house price survey (00:01)
Jun -86.9R
Jul (actual) -83.9
* UK Consumer prices index (nsa) (09:30)
Jun +0.7% Y-O-Y +3.8%
Jul (f'cast) zero Y-O-Y +4.4%
Median -0.2% Range -0.4%+0.3%
* UK Retail prices index (nsa) (09:30)
Jun +0.8% Y-O-Y +4.6%
Jul (f'cast) -0.1% Y-O-Y +5.1%
Median -0.3% Range -0.6%+0.3%
* UK RPI ex-mortgage interest payments (nsa) (09:30)
Jun +0.8% Y-O-Y +4.8%
Jul (f'cast) zero Y-O-Y +5.6%
Median -0.1% Range -0.1%+0.1%
* UK Official house prices (DCLG) (09:30)
May Y-O-Y +3.7%
Jun (f'cast) Y-O-Y +1.5%
Median +1.5% Range +1.0%:+3.0%
* French current account (07:45) (Jun)
May -€2.5bn
* French consumer prices (07:45)
Jun +0.4% Y-O-Y +3.6%
Jul (f'cast) -0.2% Y-O-Y +3.3%
Median -0.2% Range -0.4%:+0.4%
* US trade balance (sa) (13:30)
May -$59.8bn
Jun (f'cast) -$61.0bn
Median -$61.5bn Range-$65.7bn:-$59.0bn
* USTreasury statement (sa) (19:00) (Jul)
Jun +$36.4bn
Median -$82.7bn Range -$105bn:-$43bn
* Canada int'l secs transactions (13:30)
May +C$5.5bn
Jun (f'cast) +C$5.6bn
Median +C$5.8bn Range +C$5.0bn:+C$6.0bn
* Japan domestic CGPI (00:50)
Jun Y-O-Y +5.6%
Jul (f'cast) Y-O-Y +5.4%
Median +5.7% Range +4.9%:+6.1%
* Japan Industrial output (05:30) (final)
Jun (prel) Y-O-Y +0.2%
Jun (f'cast) Y-O-Y +0.2%
* Reserve Bank of Australia assistant governor Lowe speaks (23:15)

Chart of the day: UK CPI inflation is likely to have risen by over 4% in July, but we do not expect the BoE to react to near-term inflation pressure by raising interest rates



Lloyds TSB Bank
http://www.lloydstsbfinancialmarkets.com

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