Last Week’s UK Economic News Review: 

Sterling lost a fraction against the U.S. Dollar and was virtually unchanged against the Euro last week as the UK reported mostly better than expected economic data, including CPI numbers. Also last week, the ECB left interest rates and monetary policy unchanged, while the market renewed speculation of a Fed interest rate hike before the end of the year.

The UK economic calendar was fairly busy last week, beginning on Monday with a presentation by MPC Member Martin Weale on the effects of the Brexit on BOE monetary policy in London. Weale said that, “The United Kingdom’s vote to leave the European Union had led to considerable financial market volatility, which had since settled. Financial markets had functioned effectively throughout the episode and borrowing costs for high-quality borrowers remained low. Any effects of the referendum outcome on UK and global economic activity remained to be seen.”

Tuesday’s UK economic data included CPI, which increased +0.5% y/y versus an expected +0.4%. Also out were PPI Input, which increased by +1.8% m/m versus the +0.9% anticipated, and RPI showed an increase of +1.6% y/y compared to an expectation of +1.4%. Wednesday’s UK numbers featured Claimant Count Change which had an increase of +0.4K versus the +4.1K expected, and with the previous number significantly upwardly revised from -0.4K to +12.2K.  Also, the UK Unemployment Rate declined to 4.9% from 5.0%.

Thursday saw UK Retail Sales decline -0.9% m/m versus -0.4% expected, while Public Sector Net Borrowing printed at 7.3B compared to an expectation of 9.3B. The week concluded with Manufacturing PMI, which showed a reading of 49.1 versus an expected print of 47.8, and Services PMI, with a reading of 47.4 compared to 48.9 anticipated.

The U.S. economic calendar was extremely light last week, beginning with Tuesday’s release of Building Permits, at 1.15M and Housing Starts, at 1.19M, both as widely anticipated. Crude Oil Inventories followed on Wednesday with -2.3M compared to an expected -1.3m. On Thursday, the Philly Fed Manufacturing Index showed a reading of -2.3M versus -1.3M expected, and Initial Jobless Claims, at 253K versus 271K expected. Also out were Existing Home Sales, with an annualized +5.57M compared to an expectation of +5.48M. 

The EU economic calendar was moderately busy last week, beginning with Monday’s release of German ZEW Economic Sentiment survey, which printed at -6.8, significantly lower than the expected reading of +8.2 that was expected. ZEW president Achim Wambach noted that, “the Brexit vote has surprised the majority of financial-market experts.” He added that, “uncertainty about the vote’s consequences for the German economy is largely responsible for the substantial decline in economic sentiment.”

The calendar continued on Thursday with the ECB’s Minimum Bid Rate, which was left unchanged at 0.00%. In his Introduction to the press conference, ECB President Draghi noted that, “Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

The week concluded with the release of PMI numbers including:  German Flash Manufacturing PMI printed at 53.7, in line with expectations, German Flash Services PMI showed a reading of 54.6 versus an expectation of 53.3. French Flash Manufacturing PMI printed at 48.6 versus 48.1 expected, and French Flash Services PMI, which showed a reading of 50.3 compared to 49.6 expected.

Overall, GBP/USD began the week at 1.3205 and concluded the week -0.6% lower to close at 1.3123, while EUR/GBP declined from 0.8363 to close the week a mere five pips lower at 0.8358.

Key UK, U.S. and Eurozone Economic Data Releases for the Coming Week

GBP: The economic calendar for the United Kingdom calms down considerably this coming week, starting with the G20 Meetings scheduled for Sunday. Preliminary GDP is due out at 0.50 percent on Wednesday, and Friday features the release of Net Lending to Individuals for which a 4.2B result is expected.

USD: The economic calendar for the United States warms up this week. After the G20 Meetings start the week off on Sunday, Monday is quiet, while Tuesday offers the CB Consumer Confidence survey and New Home Sales, which are due out at 95.60 and 560K respectively. Wednesday has a busy lineup of economic data releases, including Core Durable Goods Orders, Durable Goods Orders and Pending Home Sales that are expected to print at 0.30%, -1.10% and 1.90%. Also, Crude Oil Inventories will be released, for which the last result was -2.3M, and the FOMC will put out its latest Rate Statement and announce its Federal Funds Rate Decision, which is expected to remain unchanged at <0.50%. On Thursday, Weekly Initial Jobless Claims is due out at 261K, and Friday has a busy day of releases, including Advance GDP, the Advance GDP Price Index, the Employment Cost Index, the Chicago PMI and the Revised University of Michigan Consumer Sentiment survey that are respectively due out at 2.60%, 1.90%, 0.60%, 54.30 and 90.20.

EUR: The Eurozone’s economic calendar remains fairly active this coming week. Sunday has the G20 Meetings, while Monday has German Ifo Business Climate scheduled to come out at 107.70.  Wednesday then features the EZ M3 Money Supply that the market is calling for 5.00%. Thursday will offer German Preliminary CPI, the Spanish Unemployment Rate and the German Unemployment Change, which are respectively expected to print at 0.20%, 20.50% and-3K. A busy Friday will then feature German Retail Sales, Spanish Flash CPI and GDP, the EZ CPI Flash Estimate, the EZ Core CPI Flash Estimate and the EZ Preliminary Flash GDP that are due out at 0.0%,  -0.50%, 0.70%, 0.10%, 0.90% and 0.30% in that order. In addition, the EBA will release its closely watched Bank Stress Test Results that may show several Italian banks on a shaky footing.

Sterling Technical Forecast, Spot Rates and Major Chart Points:

GBP/USD weekly forecast: higher
Resistance: 1.3204/27, 1.3339/1.3415 and 1.3477/80.
Spot Rate: 1.3122
Support:  1.3104/19, 1.3063 and 1.2794/1.2879.

EUR/GBP weekly forecast: lower
Resistance: 0.8378/0.8469, 0.8584/0.8637 and 0.8769/0.8814.
Spot Rate: 0.8352
Support: 0.8301/14, 0.8249 and 0.8177/0.8205.