Market Brief: Ministers hope to strike a temporary deal with the European Union to retain the key benefits of the customs union for an interim period after Brexit.

Today the Government will reveal a position paper that will seek a deal allowing the transit of goods across borders to continue as normal by creating a ‘temporary customs union’. The Government will say it wants to create “the freest and most frictionless possible trade in goods between the UK and the EU”. David Davis suggested that a main focus is to ensure that the UK can develop a trade policy which enables us to build a stronger, fairer and more prosperous UK. The paper will also reject the idea of a lengthy transition period, during which the status quo is maintained while negotiations drag on. The next paper, in a series, released tomorrow will address the borders between Ireland and Northern Ireland.
German GDP figures were released early this morning, showing that the German economy grew by less than expected in the second quarter as net trade dampened an overall expansion which was driven by strong household spending and rising state expenditure. But the growth rate for the first quarter was revised up to 0.7 percent on the quarter from 0.6 percent. The YoY figure came in 0.2 percentage points above expectations showing an annualised growth rate of 2.1%, such that the year-over-year growth pace was recorded at its fastest in 3 years.
City economists are, on average, forecasting that the UK CPI will rise to show an annual rate of inflation of 2.7% for July, up from 2.6% in June. Inflation is expected to resume its upward path following June’s surprise slowdown, when weaker global oil prices pushed down the cost of petrol and diesel, providing some respite for consumers. However, in May, inflation had hit a four-year high of 2.9%. Coupled with low pay growth, the rising cost of living means a squeeze on household real spending power. Consumers are using their credit cards to fund spending and the Bank of England has expressed alarm about the increase in personal debt. Should we see a figure of 2.7% or above, followed by growth in wage inflation tomorrow, we can expect to hear the speculators start to ramp up expectations of a rate rise sooner than the back end of 2018.

The day ahead

As mentioned, this morning at 09:30 the UK releases headline CPI and PPI inflation data for July. This afternoon we head stateside for a number of releases at 13:30. NY Empire State Manufacturing Index, followed by more important retail sales. Retail sales will be closely monitored following months of retail sales data that's missed economists' expectations. Economists are expecting month-over-month growth of 0.3 percent for retail sales, according to Bloomberg estimates; this is a substantial increase from the prior report, which reflected a drop of 0.2 percent.

Thought of the day

The JD Wetherspoons chain may leave its punters a little less cheery today after bosses have reportedly introduced a nationwide ban on charging customers' phones behind the bar. They claim the bar area is too busy and the staff don’t want the hassle of phones continually being passed over for charging. Perhaps it offers the perfect excuse for not texting your significant other to say you’ll be late home from the pub! Sterling could do with a power-up this morning as it remains around 1.29 and 1.10 against the dollar and euro respectively but with Brexit-related news expected this week, things could yet get worse for the Pound. If you’re keen to see how you can juice up the pound or charge up your hedging policy, give the Investec dealing desk a call today.