29 June, 2016
FX News Today
German GfK consumer confidence was much stronger than expected, with the July projection rising to 10.1 from 9.8. The full breakdown for June showed sharp increases in business and income expectations, but the willingness to buy still fell back as the willingness to save turned less negative with inflation expectations. Strong numbers overall, but already outdated in the light of the Brexit referendum, as the turmoil and the prolonged uncertainty will also cut back German growth expectations, even if consumers don’t realise it as yet.
The pound has remained steady for a second day, though we’re far, far from being out of a forest of uncertainty with Brexit proceedings. One thing that seems pretty clear is that the EU will not allow UK unfettered access to the single market with a closed border (can’t have the club’s bounty without the meeting the club’s obligations, to paraphrase many EU leaders at yesterday’s summit). This will remain a worry for investors, who will be anticipating lower growth potential in both the UK and Europe. We, like the consensus view, expect further declines in sterling and further bouts of crashing in non-multinational UK stocks.
The recovery on global stock markets continued in Asia with hopes of additional stimulus measures helping markets to bounce back after the Brexit sell off. BoJ Governor Kuroda said the central bank can add funds to the market as needed. ECB’s Nowotny meanwhile said the ECB is examining the impact of Brexit, but that its too early to act, after Draghi reportedly warned Brexit could shave 0.5% points off Eurozone growth. U.S. and U.K. stock futures are also higher as are oil prices, with the front end Nymex future above USd 48 per barrel. This still likely see bond futures under further pressure and yields moving off recent highs, although hopes of further policy action should limit gains in core yields. The European data calendar will likely be overlooked again as the focus remains on Brexit and the EU summit continues without Cameron, who told EU leaders yesterday that it was the EU’s immigration policy that triggered the Brexit vote. The calendar has German June inflation data, as well as the ESI economic confidence indicator and U.K. credit growth.
The June U.S. consumer confidence moved to 98.0, an eight-month high from 92.4 (was 92.6) in May and 94.7 in April, left confidence still below last year’s oddly-firm Q3 readings that included a 102.6 September figure, versus a 103.8 cycle-high in January of 2015. Confidence faces an ongoing lift from low gasoline prices, home price increases, and a likely Q2 GDP bounce as the inventory unwind and oil price hit to factories diminishes into mid-year despite the weak global economy. Confidence faces a political headwind from the high unfavorable ratings of both U.S. major party candidates and eerie U.S. parallels to the U.K.’s Brexit dynamic. We’ve seen small and divergent recent swings in available confidence gauges, though all remain below early-2015 levels.
Main Macro Events Today
EU Leaders’ Summit
UK Consumer Credit: UK May consumer credit is seen expanding to GBP 1.400B from GBP1.287B in the previous month.
EU Consumer Confidence: EU June consumer confidence is expected to come in unchanged from the previous months -7.3.
US Personal Income: Personal income is expected to grow 0.3% in May, while consumption should be 0.3%.
US Bank Stress Tests: The stress test results on US banks will be published today at 20:30 GMT.
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