Last week, we saw Sterling remain resilient despite underlying concerns over employment and being plunged into its deepest recession on record as the coronavirus lockdown saw the economy contract by more than a fifth in Q2. With the furlough scheme coming to an end in October there are obvious concerns. However, the monthly GDP for June, which may be seen as timelier, was higher than expected at 8.7% against 8.1% following the easing in lockdown measures. The market will be keen to see if the UK activity can sustain this momentum in the coming months.
In the meantime, the UK confirmed that the next round of Brexit talks will take place in Brussels this week with negotiators. Plans include a dinner on Tuesday and a press conference on Friday, leaving only two full days of talks. This suggests that the potential for any breakthrough in negotiations remains limited.
Nevertheless, UK chief negotiator Frost stated that a deal was achievable in September and Irish foreign minister Martin also stated that there was scope to find a landing zone in the negotiations.
Elsewhere sentiment remained to the upside as broader economic data saw stocks and commodities climbing, a significant development as the Pound has shown itself to be a ‘risk-on’ currency. Eurozone industrial production rose strongly for the second straight month in June at 9.1% higher than in May; the largest rise since records began in 1991. In the US, the weekly jobless claims dropped below 1m; the first time since March, whilst consumer confidence and core retail sales also increase.
Looking to the week ahead is a very busy one for UK economic data releases whilst the market will keep an eye on COVID new cases globally and the ongoing UK/EU trade talks.
- US Empire Manufacturing
Economic activity in the US will continue to be monitored amidst the ongoing COVID uncertainty. Today, the manufacturing data from the Empire State (New York and the surrounding area) will be watched.
- US housing starts and building permits
- UK & EU trade talks dinner
The housing sector in the US is expected to show further recovery with both figures forecasting monthly gains. Meanwhile, a scheduled dinner between UK and EU trade negotiating teams is due to take place.
- UK inflation
- UK/EU trade talks resume
- FOMC Meeting Minutes
Various inflation releases are due for release with the headline figure forecast to show a modest rise in annual CPI inflation to 0.7%, from 0.6% in June. This will still be well below the 2.0% target and so will have no new implications for monetary policy. The FOMC will release the minutes of its last policy meeting. The focus will be on ‘forward guidance’ as many analysts expect the Federal Reserve to change this in the near future to be more explicit on the criteria for policy changes. In the interim, UK/EU trade talks resume.
- US Jobless Claims
- US Philly Fed Manufacturing
The weekly jobless claims will be watched to see if the figure remains below 1m and continues its downward trend. At the same time, the Philly Fed manufacturing will be observed for economic activity levels.
- UK Retail Sales
- UK Flash PMI services and manufacturing
- EU Flash PMI services and manufacturing
- US Flash PMI services and manufacturing
- UK/EU press conference
It is a busy day in terms of data. The flash PMI’s from the UK, US and EZ will provide a good indication on the direction of economic activity. These figures have two readings the flash and revised, the flash reading is the more eagerly anticipated. The figure is measured in comparison to the previous month and will look at whether economic activity expanded or contracted. UK retail sales in July will also be watched closely. Uncertainty persists as to what extent sales have slowed after what appeared to be an initial post-lockdown surge due to pent-up demand.
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