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UK Avoids Recession by a Whisker

GBP

UK GDP grew 0.3% in May following a 0.4% drop in April, matching forecasts and year-on-year growth was slightly above forecast, at 1.5%. Industrial production increased 0.9% in May, less than forecast, as Auto production recovered from factory shutdowns and the sharp losses in April. Trade data printed near expected and construction output beat forecasts. 

The NIESR GDP estimate stated the UK economy is likely to contract for the second quarter but narrowly avoid a technical recession. Sterling gained modest relief from the GDP data but was reliant on a weaker Dollar to make gains as poor UK sentiment allowed the Euro to continue to test the 1.1111 mark. Bank of England MPC member Silvana Tenreyro stated that weaker global growth outlook would mean it would take longer for inflation to increase enough for her to back a rate hike. The RICS housing index improvement provided marginal Pound support enabling a push to 1.2530 as US weakness dominated. Sterling is little changed this morning and the Euro hovers near 1.1111. 

USD

In prepared testimony, Federal Reserve Chair Powell stated that the outlook for the US economy was to remain solid, but growth appears to have moderated with a dip in investments. Uncertainties surrounding trade tensions and concerns over the global economy had also continued to weigh in. He also stated, importantly, that weak inflation will be more persistent than the central bank was anticipating. Powell also stated that the Fed will act when necessary to sustain US economic growth. The statement overall was much more dovish than the markets expected, especially as Powell appeared more concerned over the outlook despite the US-China trade truce.

Minutes from June’s Fed Reserve policy meeting outlined a number of members saw a rate cut as warranted in the near term if trade and global risks continued to weigh on the outlook. St Louis Fed President Bullard reiterated that he wanted to take out some insurance against a sharper slowdown and would support a 0.25% rate cut.

EUR

The Euro is solidly bid heading into the trading session this morning, courtesy of Jerome Powell’s dovish testimony yesterday. The currency against the Dollar is currently trading in and around the 1.1265. 

The minutes of the European Central Bank's June meeting are due for release today and the currency could face renewed selling pressure if the rhetoric lay the groundwork for a possible rate cut in September. President Draghi did emphasize the easing bias during his speech in Sintra last month. However, if the minutes sound less dovish than expected, the Euro could very much surge straight through the 1.13 and move towards 1.1350.

Today's data:

01:00 AUD Consumer Inflation Expectations (Jul) 01:30 AUD Home Loans (May) 01:30 AUD Investment Lending for Homes (May) 06:00 EUR Harmonized Index of Consumer Prices (YoY) (Jun) 09:30 GBP Financial Stability Report 10:00 GBP BoE's Governor Carney speech 10:15 EUR ECB's Cœuré speech 11:30 EUR ECB Monetary Policy Meeting Accounts 12:30 USD Continuing Jobless Claims (Jun 28) 12:30 USD Initial Jobless Claims (Jul 5) 12:30 USD Initial Jobless Claims 4-week average (Jul 5) 12:30 USD Consumer Price Index (YoY) (Jun) 12:30 USD Consumer Price Index ex Food & Energy (MoM) (Jun) 12:30 USD Consumer Price Index ex Food & Energy (YoY) (Jun) 12:30 USD Consumer Price Index (MoM) (Jun) 12:30 USD Consumer Price Index Core s.a (Jun) 13:10 AUD RBA's Debelle speech 14:00 USD Fed's Chair Powell testifies 15:10 USD Fed's Williams speech 16:15 USD Fed's Bostic speech 18:00 USD Monthly Budget Statement (Jun) 21:00 USD Fed's Kashkari speech 22:30 NZD Business NZ PMI (Jun) 

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