Key Points
Interest Rate decisions for New Zealand an Canada this week.
US yearly inflation set to fall again.
UK GDP expecting to show growth after last month’s contraction.
FX Update
GBP
Sterling traded well last week, rallying to new cycle highs around $1.2850, as the pound continues to benefit from a hawkish repricing of the UK rates curve, and subsequent sell off in Gilts, with 10-year yields topping 15-year highs
It is interesting that the market continues to see the pound as a rates/carry story, with an even chance of Bank Rate reaching 6.75% currently being priced, rather than the UK being a story of stagflation, exhibiting anaemic economic growth, and persistently high inflation
Looking ahead, this week brings our latest read on the labour market, with all eyes on whether the pace of earnings growth has moderated from the record high (ex covid) seen in April; the latest monthly GDP data is also due, with a contraction all-but-certain in May owing to the extra bank holiday
EUR
The common currency also gained ground last week, though this was largely a function of broad-based USD weakness, as opposed to any particularly positive impulses coming from within the bloc
Despite the gains, the EUR’s rally again ran out of steam jus tshy of the $1.10 handle, which has proved a step too far on numerous occasions now, with markets appearing to desire more certainty over a potential September ECB hike before piling further in from the long side
This week, the bloc’s data docket is relatively quiet, lacking any top-tier releases, again leaving focus on any potential ECB speakers, as markets continue to mull – on a global basis – how high interest rates are likely to head
USD
The greenback traded softer last week, declining against most of its G10 peers, with Friday’s poorer-than-expected headline nonfarm payrolls print appearing to exert some downward pressure, despite other areas of the jobs report – including the unemployment rate, and 0.4% MoM earnings growth – providing enough ammunition for the Fed to hike rates once more at the end of the month
In fact, it’s interesting, and concerning for the USD bulls, that the buck was unable to hold a bid last week, particularly with Treasury yields rising to new cycle highs at the long end of the curve, and after a slew of better-than-expected data, perhaps suggesting the tide may be beginning to turn in favour of the bears
In the week ahead, Wednesday’s CPI data highlights the calendar, with headline inflation set to fall to around 3% YoY, while core CPI will likely remain elevated at around 5%, again providing enough ammunition for the Fed to deliver a further 25bp increase towards the end of July
World News
Shareholders in Thames Water have agreed to inject an addition £750m as the company continues to escape the risk of government control. The firm has faced criticism over sewage discharges and excess of leaks alongside its debt of around £14bn. The government have announced they are prepared to step in but Thames Water have claimed they have access to enough cash and credit facilities to pay this year, next year and into the future.
US President Joe Biden has arrived in London ahead of the two-day NATO summit, in which leaders are set to discuss the war in Ukraine. Biden and Sunak are expected to speak about counter-offensive actions against Russia, Ukraine’s NATO membership and climate control measures. This will be the fifth meeting in just a few months between the two.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 11th July | UK | Claimant Count Change | (13.6k) | 20.5k |
| Wednesday 12th July | NZ | Interest Rate Decision | 5.50% | 5.50% |
| Wednesday 12th July | US | CPI y/y | 4.00% | 3.10% |
| Wednesday 12th July | CA | Interest Rate Decision | 4.75% | 5.00% |
| Thursday 13th July | UK | GDP m/m | 0.20% | -0.30% |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7,256.94 | 7,256.94 |
| DAX | 15,603.40 | 15,585.34 |
| CAC40 | 7,111.88 | 7,082.46 |