Brexit Fears Limit Positive UK Data Impact.
The pound reversed recent trends and gained across the board on Wednesday. Sterling initially edged higher on the back of some positive inflation data for July. Consumer price index rose to 2.1% beating market expectations of 1.9%. However, upside movements were limited and as pound sentiment is largely tied to Brexit fears at present. Normally a rise in inflation would bolster the case for future interest hikes but at present, the market is still pricing in a cut by May 2020.
Across the pound, U.S. Treasury yield curves inverted for the first time since 2007. In short, this indicates investors are able to achieve a higher rate of return on near-dated bonds compared with longer-dated equivalents. Traditionally, such an event has been considered a red flag for a future recession.
Comments from Boris Johnson yesterday indicated that little progress is being made with Europe. Whilst he maintained the UK is on course to leave the EU on the 31st October, he added that the longer the situation goes on, the greater a no-deal outcome becomes. Calling for unity amongst MPs, Johnson warned that if the EU believe parliament can block a no-deal, they will be far less likely to compromise. Unsurprisingly it seems he now finds himself in a position similar to that of Theresa May but with Remainers replacing the role previously played by Brexiteers.
Retail sales will be the main data release this morning for the European session. Focus will then shift to the same announcement but this time from the US followed by some further unemployment data.
|09:30||GBP Retail Sales (YoY) (Jul)||2.6%||3.8%|
|13:30||USD Retail Sales Control Group (Jul)||0.3%||0.7%|
|13:30||USD Initial Jobless Claims (Aug)||214k||209k|
|13:30||USD Nonfarm Productivity (Q2)||1.5%||3.4%|