In the only piece of data out from the UK today, preliminary readings for second quarter GDP were expected (and have) shown a quarter-on-quarter growth rate of 0.7%, a significant boost on Q1’s reading of 0.4%. Sterling was boosted earlier in the month by a raft of hawkish comments from various MPC members, most notably Carney himself, however the momentum wasn’t sustainable and the pound retreated back from the highs it made against the dollar, and more noticeably the euro, where after making seven-year highs we broke back below 1.40 briefly in early trading yesterday. Despite hawkish MPC comments, markets are currently pricing in a rate hike from the MPC next year, but with a strong GDP figure will bring this forward and undoubtedly give the pound a much-needed boost.
Stocks have been selling off rather aggressively these last few sessions, but overnight saw a stabilisation of the rout brought on by China taking a nosedive. Worryingly, the chap who predicted this decline in the Shanghai Composite Index back in 2013 says we’ve got a very long way to go yet – for those familiar with technical analysis it was Tom DeMark’s indicators that flashed red for the index, which predicts a fall down to 3,200 within weeks. If this happens, signs of a global slowdown could put the brakes on a US rate hike, but we’d also expect to see some safe haven flows into the dollar so which way the dollar would trend, who knows? Consumer Confidence data this afternoon is always very closely watched by the market but tomorrow’s FOMC statement is where it’s at for volatility.
The IMF’s Deputy Director Mahmoud Pradhan said that it was important that the ECB stayed its course on QE and hinted that more money printing may be necessary. If anyone more important starts to echo similar sentiments the euro will continue to get hammered. There are some stories starting to emerge in mainstream media about Varoufakis having a plan to ‘hack’ the Greek tax system without telling anyone in order to return the country to the Drachma, and it looks like Lord Norman Lamont was going to help him do it. Credit Suisse released a research note saying that they expect the crisis to rear its head again within the next few years – annoying because I’m bored of writing about it but they’re probably right. No data today, and only German Consumer Confidence tomorrow, before a whole raft of data (perhaps even enough to move the market) on Thursday and Friday.
Telegraph – UK investors see 2015 gains wiped out as markets fall.
BBC – UK economic growth picks up to 0.7% in second quarter.
FT – Strong pound hurting UK manufacturers.
Pound Sterling (GBP), Euro Currency (EUR), US Dollar (USD) exchange rates commentary is provided by Argentex (Ag-Fx.com)