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There is good and bad news in this week’s macro headlines. On the bullish side, the World Bank has increased their latest global growth forecast, which they project to reach 2.7% by the end of the year. This is consistent with the increased levels in the Markit PMIs that started in 4Q16. Read more
This week, the Conference Board released their latest leading and coincident indicators. They were up .3% M/M while the 6-month rolling average was +2.3%. But while 9 of 10 indicators increased, there’s been an industrial weakness for the last 7 months: The average workweek of production workers, new consumer goods orders, and manufacturers’ new orders of non-defense goods have all been weak for the last 7 months. Read more
May data this week included new and existing home sales, both of which increased, and the Index of Leading Indicators, which was also positive. Read more
For what seems like forever, the Fed has been saying they are using a 2% inflation target. Given this expansion’s weak growth, this seems to be a fair and appropriate number. But intuition can be deceiving. The San Francisco Federal Reserve has issued several reports showing the natural rate of interest to be right around 0% -- which tells us the natural rate of inflation is probably below 2%. Read more
OVERVIEW The service sector PMI in Europe disappoints as activity tails off as we approach the end of the second quarter Sterling rallies helped by interest rate expectations that UK interest rates may go higher sooner rather than later Bank of Mexico raises interest rates to 7% The US dollar sidelines while market waits for inflation data next week Canadian inflation data disappointed by growing by just 0.1% in May and 1.3% y/y forcing the Canadian dollar to drop 0.5% in value HIGHLIGHT One year on from Brexit, Theresa May has offered that no EU citizen living lawfully in Britain will need to leave and those that have lived in Britain for five years will have 'settled status' and will be eligible to health care, pensions, benefits and education just like a British national. US DOLLAR The US Dollar has weakened a little as we await further clues for the outlook on interest rates with next week's inflation data being key. BRITISH POUND The Pound has rallied over the last 24 hours as talk of the potential for interest rate hikes start to heat up while Theresa May initial discussions on Brexit meet with a relatively warm reception from the EU leaders EURO The service sector PMI data dropped to 54.7 in June from a previous reading of 56.3 in May, which was a surprise to the market which was expecting a steady continuation in the pick-up in activity. CANADIAN DOLLAR The Loonie weakened by 0.5% as inflation fell short of expectations of growth of 0.2% in May and only rose 1.3% y/y. AUSTRALIAN DOLLAR The Australian dollar ends the week higher but held back from making further gains on talk of a second Australian state looking to charge its own bank tax. FEATURED CURRENCY The Central Bank of Mexico raised interest rates by 25bps to 7% in line with expectations and this is now expected to be the final hike in the recent cycle. Read more
In my reports on housing permits and starts over the last week, I pointed out the added importance of today's new home sales report. Permits and starts both turned south to new 12 month lows and single family permits at least slowed to a 6 month low. Read more
EUR-USD lifted before capping out 1.1187, ahead of reported option-related selling interest into 1.1300. The pair subsequently drifted to a low of 1.1161 before settling around 1.1175. The flash June composite PMI reading undershot expectations, though still pointed to relatively robust growth, while price increases slowed, which should keep the ECB hawks at bay. Read more
The dollar has traded mostly softer so far today. EUR-USD has drifted moderately northward, pushing toward recent range highs in the upper 1.11s. Cable has seen a similar price action in rising above 1.2700, making this the third consecutive up day the pair has seen. Read more
OVERVIEW The Norwegian central bank kept interest rates on hold as expected, but signalled a change in bias, removing guidance that it could cut rates this year. The New Zealand central bank left rates on hold as expected. UK Manufacturing activity strengthened again in June as factory orders hit their highest level in nearly 30 years. The ECB's economic bulletin reported that economic data points to solid growth in the euro zone in the second quarter. Canadian retail sales rose 0.8% in April , versus 0.2% forecast HIGHLIGHT Oil prices have fallen 19% in less than a month, to their lowest levels since August last year. Read more
