Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Aug 13 08 06:46 GMT |

Overview & economic commentary The BoE will this morning publish its latest Inflation Report, outlining its forecasts for gdp growth and inflation based on implied interest rates, currently 5.0%. The dilemma facing the Bank was underlined yesterday when inflation data for July showed a rise in headline and core CPI. Annual CPI accelerated to 4.4% and in our view is still some way off its peak, expected in August/September as pipeline inflation pressures come to the fore. However, the fact that core inflation is also rising, despite the economic slowdown, is a sign that even if oil prices start to bear down on consumer prices, the upward pressures on inflation adjusted for oil and food will offer the Bank virtually no leeway to stimulate demand, even as growth falters. Labour market data will be published ahead of the Report. A rise in the number of people claiming unemployment benefits has been observed in recent months and we suspect that this trend probably continued in June. Employment components from the PMI surveys suggest that the claimant count total may rise over the coming months. We expect the ILO unemployment rate to have edged up in June to 5.3%. Focus in the US today will be on retail sales and oil inventories. Weaker anecdotes by big high street names suggest some of the sales momentum may have faded at the start of Q3. However, the 7% drop in US petrol prices since July 16th is a reason to be hopeful that the end of the tax credit needs not be accompanied by an abrupt slowdown in consumer demand. Currency commentary The BoE Inflation Report and comments by governor King on the outlook for the UK economy may have an important say in the direction in sterling crosses and volatility this morning, with markets pondering the options for base rates. However, major fx trends continue to be dictated by oil prices and equities so with US oil inventories due at 3.35pm, we would expect oil to reassert itself as the principal driver for dollar crosses. £/$ stabilised around 1.8975 o/n. However, US retail sales may impact global fx markets as we take knowledge of the first consumption trends at the start of Q3. Fed funds have trimmed expectations of a rate hike by year-end to 50% following the bounce in the dollar and dovish comments from FOMC voters o/n. This has partly been associated with lower oil prices and confidence that inflation will remain stable over the coming months. In EM, $/ruble posted its biggest drop o/n since March as Russia ended the fighting in Georgia. £/ruble has slipped to 45.7759 from Monday's 47.1853 high. Major data and events today UK Unemployment (sa, claimant count) (09:30) Jun +15.5k Rate 2.6% Jul (f'cast) +16.6k Rate 2.6% Median +17.0k Range +10k:+25k UK ILO Unemployment rate (09:30) Ma y 5.2% Jun (f'cast) 5.3% Median 5.3% Range 5.2%:5.3% UK Average earnings (3m avg, headline, sa) (09:30) Ma y +3.8% Jun (f'cast) +3.4% Median +3.6% Range +3.4%:+3.9% UK Unit wage costs (3m avg, annual, sa) (Jun) (09:30) Ma y +1.8% EU-15 industrial production (10:00) May -1.9% Y-O-Y -0.6% Jun (f'cast) -0.6% Y-O-Y -0.5% Median +0.1% Range -1.2%:+1.0% US Import prices (13:30) Jun +2.6% Y-O-Y +20.5% Jul (f'cast) +1.2% Y-O-Y +19.8% Median +1.0% Range +0.4%:+2.0% US Retail sales (advance) (13:30) Jun +0.1% Y-O-Y +3.0% Jul (f'cast) +0.2% Y-O-Y +3.0% Median +0.1% Range -0.6%:+0.7% US Retail sales, ex-autos (13:30) Jun +0.8% Y-O-Y +6.2% Jul (f'cast) +0.6% Y-O-Y +5.9% Median +0.5% Range -0.2%:+1.0% Japan Real GDP (00:50) (prel) Q1 +1.0% Annualised +3.2%R Q2 (actual) -0.6% Annualised -2.4% Japan GDP deflator (00:50) (prel) Q1 -1.5% Q2 (actual) -1.6% Japan Trade balance (BoP) (00:50) May +Y529.4bn Jun (actual) +Y252.1bn Japan Current account (00:50) May +Y2000.6bn Jun (actual) +493.9bn Norwegian central bank interest rate decision - no change at 5.75% expected (13:30, news conference 13:45) Germany to re-open 10-year Bund of €6bn of 4.25%, July 2018 US weekly oil inventories (15:35) Chart of the day: Tax credits may have helped to support US retail sales in Q2. Cheaper petrol prices may underpin consumer demand in Q3. Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. 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