Last week was a mixed week for sentiment, with many eyes on the downside due to concern of an increase in COVID-19 cases in the US – new cases growing to north of 60k a day with Florida reporting in excess of 15k a day. In recent weeks, economic data from the US has been to the upside, but as a result of the recent surge Federal Reserve policymakers have warned that activity may be “leveling off” and that more fiscal support may be necessary.

In the meantime, UK Chancellor of the Exchequer Rishi Sunak’s Summer Economic Update outlined the second phase of job retention measures. This has come in a three-step plan focusing on jobs, including a Job Retention Bonus to keep furloughed employees in work, a Kickstart Scheme for 16-24-year olds and targeted measures for hospitality and housing.

Brexit newswires have been mixed and are likely to remain as such for the foreseeable future. It is difficult to say when exactly talks will conclude, given they had ended earlier than scheduled in the past two weeks; is this a good or bad sign?

There were reports that the EU could be willing to compromise on the issue of fishing rights. Cabinet Minister Michael Gove said on Sunday progress was being made in talks but there were still divisions. Gove went on to say, “at the end of this year we are leaving the single market and Customs Union regardless of the type of agreement we reach with the EU”.

Tuesday

  • UK GDP (monthly)
  • German ZEW
  • US CPI

The market will be keen to understand the differential between lockdown and non-lockdown conditions in the UK. The UK monthly GDP will provide a good barometer of this as it is expected to part reverse its -20.4% and post a gain circa 5%. However, this may be taken with a pinch of salt ahead of the unemployment numbers on Thursday and the public announcements of ongoing job losses. In mainland Europe, the German ZEW numbers will be closely monitor both on the current conditions but also its 6-month expectation; especially as positive data has started to taper. The US inflation data will also be monitored with ongoing mixed sentiment amidst COVID-19 new cases and positive economic data.

Wednesday

  • UK CPI
  • US Industrial production

UK CPI inflation is expected to stay well below the 2% target, with the outlook remaining subdued and likely to be further depressed by the temporary reduction in VAT on hospitality and tourism announced by the Chancellor last week; that said it is not expected to slide lower. US industrial production is also likely to post a decent gain in June of circa 5% led by manufacturing.

Thursday

  • UK unemployment data
  • ECB meeting
  • US Retail sales

The official UK labour market data from the ONS has provided little indication of the coronavirus-related detriment that has been seen, however, there have been some headline companies stating the redundancies may be imminent. Today’s data may start to paint a sombre picture. It is expected that the unemployment rate will rise to 4.1% in the three months to May. Three-monthly employment growth is forecast to fall by 275k and headline average earnings growth is expected to turn negative at -0.7%.

The ECB meeting is expected to keep policy settings on hold, having already increased the envelope of its Pandemic Emergency Purchase Programme (PEPP) by €600bn last month to a total size of €1,350bn. However, the lack of interaction from France and Germany on its bond buying scheme may be noted and could keep the ECB on its toes.

US retail sales are expected to show a sharp increase in part due to stronger car sales and a rise in gasoline prices.

Friday

  • EU Meeting
  • BoE Gov Bailey

There will be focus on a meeting of EU leaders with an agreement (which must be unanimous) yet to be reached on the details of the €750bn recovery package. BoE Gov Bailey is due to speak on a panel, as head of the central bank, which controls short term interest rates, he has more influence over the nation’s currency value than any other person.

Read out Monthly FX Forecast for a longer term view of currency to movement.

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