Last Week’s UK Economic News Review

Sterling continued its decline against both the U.S. Dollar and the Euro last week, making a fresh 31 year low against the Dollar while making a new three year low against the Euro. The decline in Sterling continues to be in large part due to the results of the Brexit referendum on June 23rd.

The UK economic calendar was moderately busy last week, beginning on Monday with Construction PMI, which printed at 46.0 versus an expectation of 50.6. Services PMI followed on Tuesday, printing at 52.3 compared to 53.1 expected. Tuesday also saw the release of the BOE Financial Stability Report in which the BOE reduced its requirements for banks, with the counter cycle capital buffer lowered from 0.5% to 0.0% of risk weighted assets.

In the Report, BOE Governor Carney noted that, “In particular, there is growing evidence that uncertainty about the referendum has delayed major economic decisions, such as business investment, construction and housing market activity. More positively, sterling’s sharp depreciation should, for given foreign demand, provide support to UK exporters, and the sharp fall in gilt yields has meant that all-in corporate borrowing costs actually fell modestly over the course of last week. In addition, financial markets have managed the volatility around the referendum well and have not added to stress.”

Thursday had Halifax HPI, which increased +1.3% m/m versus +0.4% expected, and Manufacturing Production, which declined -0.5% m/m versus -1.2% anticipated. On Friday, the Goods Trade Balance showed a deficit of -9.9B compared to -10.2B expected.

The U.S. economic calendar was moderately busy again last week, beginning on Tuesday with Factory Orders, which declined -1.1% m/m versus -0.8% anticipated. On Wednesday, the Trade Balance showed a deficit of -41.1B versus -40.0B expected, and ISM Non-Manufacturing PMI, which printed at 56.5 versus 53.3 expected. Also on Wednesday, the FOMC Meeting Minutes noted that, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

On Thursday, ADP Non-Farm Employment Change showed +172K new jobs versus an expected +158K, while Initial Jobless Claims showed 254K claims last week compared to an expected 269K. The week concluded with the release of Non-Farm Payrolls, which showed +287K new jobs last month compared to an expected +175K, nevertheless, the U.S. Unemployment Rate increased to 4.9% from 4.7% and Average Hourly Earnings increased +0.1% versus +0.2% expected.

The EU economic calendar was very light last week, limited to Monday’s release of Spanish Unemployment Change, which showed a decline of -124.3K versus -99.3K expected, and German Factory Orders, which showed a flat reading versus an expected increase of +1.0%. The week concluded with the release of the ECB’s Monetary Policy Meeting Minutes, which noted that, ““Altogether, the Governing Council considered that the risks to the euro area growth outlook remained tilted to the downside. Some important downward risks were still looming, relating, in particular, to developments in the global economy, the outcome of the forthcoming UK referendum and other geopolitical risks. At the same time, there was broad agreement that the balance of risks to the euro area growth outlook had improved on the back of monetary policy measures taken and the stimulus still in the pipeline.”

Overall, GBP/USD began the week at 1.3278 and concluded the week -2.5% lower to close at 1.2941, while EUR/GBP rallied from 0.8380 to close the week +1.8% higher at 0.8534.

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

GBP: The economic calendar for the United Kingdom remains active this coming week, as Brexit vote aftershocks continue to weigh on Sterling and UK benchmark interest rates seem likely to fall. Monday is quiet, while Tuesday has the Inflation Report Hearings on calendar. Wednesday then has the BOE Credit Conditions Survey, and a busy Thursday offers the MPC’s Official Bank Rate Decision that is expected to show rates lowered by 25 basis points to 0.25% from 0.50% with an associated vote of 0-9-0 in favor of doing so. The Asset Purchase Facility is expected to remain unchanged at 375B with a vote of 0-0-9, and the Monetary Policy Summary will be released. BOE Governor Carney will speak on Friday to conclude the week’s highlights.

USD: The economic calendar for the United States also remains quite busy this week. Monday offers a talk by FOMC Member George, and Tuesday features a talk by FOMC Member Bullard in addition to JOLTS Job Openings, which is expected to print at 5.74M. Wednesday’s data releases include Import Prices that are expected to rise by 0.60%, plus Crude Oil Inventories for which the last result was -2.2M. Thursday will feature the PPI and Core PPI data, due out at 0.30% and 0.10% respectively, in addition to Weekly Initial Jobless Claims that are expected to come out at 263K. Friday will conclude the week’s highlights with CPI, Core CPI, Retail Sales and Core Retail Sales due out at 0.20%, 0.20%, 0.10% and 0.40% respectively, plus the Empire State Manufacturing Index,  the Capacity Utilization Rate Industrial Production and the Prelim University of Michigan Consumer Sentiment survey that are expected to print at 5.1, 75.2%, 0.20% and 93.7.

EUR: The Eurozone’s economic calendar cools down even more this coming week. The week’s highlights start off on Monday with the Eurogroup Meetings and conclude on Friday with EZ Final CPI data for which a 0.10% result is anticipated. In addition, the French will have a Bank Holiday on Thursday.

Sterling Technical Forecast, Spot Rates and Major Chart Points:

GBP/USD weekly forecast: lower
Resistance: 1.2991, 1.3119 and 1.3204/27.
Spot Rate: 1.2947
Support:  1.2863/79 and 1.2794.

EUR/GBP weekly forecast: higher
Resistance: 0.8584/0.8637, 0.8769 and 0.8814.
Spot Rate: 0.8535
Support: 0.8466, 0.8314/99 and 0.8205.