Data not supporting rate hikes

This Friday the final NFP report of H1 ‘17 will be released. The data has been patchy at best and only history will determine if that was sufficient to warrant three rate hikes in the period.

It is of course clear that the reason for the hikes in rates was to temper a bubble that was threatening to form in equity markets. That may have been achieved now so why continue the pretence? FOMC members, overall, have been at pains to present a united front and support Janet Yellen. Their reasoning has been shrouded in a mist of “need to know” based information which looks increasingly contrived.

The minutes of the last FOMC meeting where rates were hikes are released later today so all will be revealed…. maybe.

The dollar index has been reasonably steady, unable to make much headway but well supported at lower levels.

U.K. economy continues to bring concern

Evidence of a slowdown in economic activity continues to bring concerns as inflation remains stubbornly high. Whilst the manufacturing and construction sectors grow, the pace of growth is slowing. Yesterday saw the release of construction PMI which slowed slightly from 56 to 54.8. This followed manufacturing data with a similar outcome released on Monday.

There will be a further month’s data for the MPC to analyse before their next meeting on August 3rd but if voting patterns remain, the new member will be not be given any time to settle in!

This Friday the NIESR a respected research institute will release its estimate of GDP for the three months to June. It is likely that the economy grew but by a tiny 0.2%. This data which provides a more up to date reference that the official quarterly report is closely watched by the MPC.

Eurozone activity remains constant

The activity indexes for the Eurozone are showing a constant performance across the whole region despite ECB President Mario Draghi’s worries that there are still “pockets of concern”.

Composite services and manufacturing data is likely to show that overall activity was at 55.7 unchanged from May and retail sales grew by 0.3% in June up from 0.1% in May.

The common currency has corrected a little following its rise on the back of the ECB President’s more hawkish comments last week. It remains well supported at 1.1350 but there are now commercial orders to sell around 1.1420.

Given the similarity of the monetary policy outlook, albeit for totally different reasons, between the Eurozone and U.K., it is no surprise that the Eur/Gbp cross is relatively stable.

A non-monetary policy meeting of the ECB takes place tomorrow. Brexit is likely to be a topic of conversation but, so far, there has been no comment from Draghi on the outlooks for a post-Brexit Eurozone.

Kim taunts Trump with missile test

The prospect of an armed conflict on the Korean Peninsula came a step closer yesterday as North Korea successfully tested a medium range missile which could possibly reach Alaska. This brings the development of a capability to reach California a little closer.

China and Russia joined the U.S. in condemning the escalation of tension and Donald Trump used his favourite social media platform to call on China to rein in Kim Jong Un.

Since Kim refuses absolutely to consider any change to his nuclear ambitions, the scope for diplomacy looks thinner and thinner.

South Korea has no interest in turning its country into a battlefield especially since along with several nuclear installations the North has a battery of long range artillery aimed at Seoul just 35 miles over the border.

The JPY appreciated yesterday as risk aversion surfaced but it will take a major escalation to bring a significant move.

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