The week ahead:
- US Federal Reserve policy meeting minutes (Wednesday, 7:00pm)
- Euro zone purchasing managers’ survey data (Thursday, 9:00am)
- Central bankers gather for Jackson Hole symposium (Thursday – Sunday)
Highlights from last week:
- UK wage growth reaches an 11-year high in three months to June
- Sterling recovers from recent lows as Labour prepares to thwart no-deal Brexit
- Euro zone growth slows to 0.2% in second quarter, German economy contracts
The week ahead – Quiet week for UK data, Brexit remains key focus for pound
The UK political landscape has tended to overshadow domestic economic developments in recent weeks, with sterling enduring some volatility as investors continue to try to weigh up the chances of a no-deal Brexit. The UK data calendar is relatively quiet this week, although public sector net borrowing figures (Wednesday, 9:30am) will offer an insight into the health of the public finances in July.
The US economic calendar is relatively busy. Highlights include existing home sales data (Wednesday, 3:00pm), the minutes of the Federal Reserve’s July policy meeting (Wednesday, 7:00pm), initial jobless claims figures (Thursday, 1:30pm) and new home sales data (Friday, 3:00pm).
The euro zone economy has struggled in recent months and August’s purchasing managers’ survey data (Thursday, 9:00am) will provide an up to date gauge of activity across the region’s manufacturing and services sectors.
The world’s top central bankers will gather at this year’s annual Jackson Hole symposium (Thursday through to Sunday). As ever, investors will watch closely for any comments from policymakers which may provide clues regarding the major central banks’ policy outlooks.
Last week recap – Brexit developments continue to overshadow UK data
Sterling remained under pressure early last week but recovered some ground after the opposition Labour Party said it could call a no-confidence vote in Boris Johnson’s government to try to thwart a no-deal Brexit. Economic developments have tended to play second fiddle to the politics, although there were some positive data surprises last week. The latest labour market data showed the employment market remained robust. Average total earnings growth reached an 11-year high of 3.7% in the three months to June, with a record high of 32.811 million people in employment.
The annual inflation rate in the UK unexpectedly rose to a three-month high of 2.1% in July, from 2.0% in June. This is above the Bank of England’s (BoE) 2% target rate. The pound again offered little immediate reaction to the data, with the BoE’s policy outlook likely to be heavily influenced by the nature of the UK’s upcoming withdrawal from the EU. UK retail sales grew by 3.3% in July compared to a year ago, comfortably beating expectations.
At midday on Friday, a conversion of £20,000 to US dollars via our telephone Currency Service would have purchased a USD figure of $24,112.
Euro zone economy slows in second quarter, led by German weakness
Euro zone Gross Domestic Product (GDP) growth slowed to 0.2% in the second quarter, half the pace of the region’s 0.4% growth rate in the second quarter. GDP in Germany, the bloc’s largest economy, actually fell by 0.1% during the three months to June. The decline in Germany’s export-driven economy may be a sign that Brexit-related uncertainties are impacting businesses on the continent, at a time when ongoing Chinese/US trade disputes are also disrupting the global economy’s growth prospects.
At midday on Friday, a conversion of £20,000 to euros would have purchased €21,766.
US/China trade war continues to spook global markets, Japanese yen and Swiss franc initially find support
The ongoing trade war between the US and China has again spurred volatility across world markets in recent weeks. A US announcement last week that it would delay implementing some of the further tariffs on Chinese imports only alleviated concerns temporarily, with China later warning it would take fresh countermeasures. Combined with growing worries that global growth is faltering, this has prompted rising demand for currencies which are perceived as safe-havens such as the Japanese yen and Swiss franc. Sterling initially fell to its lowest levels against the franc and yen since late 2016 before paring losses later in the week.
At midday on Friday, a conversion of £20,000 to either Japanese yen or Swiss franc would have purchased JPY 2,564,600 and CHF 23,636 respectively.
Australian employment growth stronger than expected
The Australian labour market report was stronger than expected, with 41,000 jobs added in July and the unemployment rate holding steady at 5.2%. This lowers the likelihood of a further interest rate cut next month although the Reserve Bank of Australia may still opt to reduce borrowing costs later in the year.
At midday on Friday, a conversion of £20,000 to Australian dollars would have purchased AUD$35,548.