Politics taking a break
It’s nice to begin a week with no overarching political theme dominating asset prices as markets open up on Sunday. As we in Europe walk in this morning and take a look at how the board lies, there will be more than a few sighs of relief. That is not to say that political risk has been put to bed for the summer and autumn months; elections in the UK and Germany and legislative votes in France as well as continued Greek debt issues will take care of keeping that pan of water close to a rolling boil but this week’s political fun and games could easily be contained.
Instead what we will be dealing with is a good deal of data from which the market will be looking to extract a narrative. Poor inflation and retail sales numbers last week in the United States have given some additional concerns about how much further the Federal Reserve can drive interest rates higher in the short term.
Sterling geared for a rise but maybe next week
Here in the UK following the Bank of England’s Quarterly Inflation Report last Thursday and its altogether unsurprising negativity and caution over the UK economy we receive the latest readouts of inflation (tomorrow), wages (Wednesday) and retail sales (Thursday). These are unlikely to change much of the prevailing narrative in the UK – wages under pressure, prices rising, retail poor – that has been in place since the beginning of the year.
To give sterling its dues, its ability to stick close to the 1.30 mark is surprising and despite the broadside given last week by the Bank of England Governor last week there is still a very good chance that we see a break, and a meaningful one, above 1.30. We do not think that that break occurs this week however as we believe that the sentiment generated from those three data releases will be largely negative for sterling. At the moment the positioning in sterling markets is a mess and a blow through 1.30 in GBP/USD and, to a lesser extent 1.20 in GBP/EUR, would make the picture a little clearer.
Oil set to remain constricted by cartel interests
News elsewhere is being dominated by the decision by Russia and Saudi Arabia that they favour an OPEC deal to limit the amount of crude sold into the world economy for another nine months, keeping prices artificially high. Needless to say those currencies that benefit from their ties to the commodity space are higher with NOK, CAD, AUD, ZAR and NZD all gaining. Today’s data calendar is rather quiet and sideways trade for the major pairs is likely.