25 Aug 2017

Market Brief: all eyes on the Jackson Lake Lodge

Shaun Garrett

Dealing team

Thursday began with the UK Q2 GDP figures. This was the second estimate for the 2nd quarter of 2017. The reading showed GDP growth of +0.3% q/q, unrevised on the earlier estimate. On a year over year basis that left growth 1.7% higher.

Latest rates   Today's data release
GBP/USD GBP/EUR GBP/AUD GBP/AUD GBP/CHF 09:00 EU current account
1.2894 1.0973 1.6301 1.6302 1.2415 10:00 EU construction output
GBP/JPY GBP/HKD GBP/ZAR EUR/USD EUR/GBP 15:00 US Michigan sentiment
140.59 10.0882 17.0418 1.1748 0.9111
Investec currency forecasts as at 27 July 2017 Key levels
  Q3 '17 Q4 '17 Q1 '18 Q2 '18 Support Resistance
GBP/USD
1.29 1.30 1.30 1.31 1.2820 1.3030
GBP/EUR 1.13 1.14 1.13 1.13 1.0930 1.1020
market brief daily chart
Market overview

The GDP and growth numbers were in line with our own forecast and the market consensus. The detail of the report shows that Q2 household spending was up 0.1% q/q, which was the weakest reading since Q4 2014, with the statistics office explicitly pointing to the lower value of the pound having hit household budgets. A further sign of possible Brexit related weakness came in the business investment numbers which were flat over the quarter. Despite the weaker pound post Brexit vote, net trade’s contribution was zero, albeit a marked improvement on the 0.8ppts drag from that category in Q1. Separately BBA mortgage approval figures were published at the same time. These showed a pick-up in July to 41.6k, the highest reading since February, from a revised 40.4k in June. Sterling was left unchanged after these figures.

In a week where excitement in markets has been muted, investors will focus on the forum in Jackson Hole, Wyoming. Federal Reserve Chair Janet Yellen may offer clues today on the timing of reductions in stimulus this afternoon. Two Fed officials offered opposing views yesterday on the inflation debate. Kansas City’s Esther George said another rate hike is feasible this year if U.S. data holds up. Dallas’s Robert Kaplan called for patience in waiting for prices to go higher. Later in the evening Mario Draghi will take the stage, although he isn’t expected to discuss the current QE programme it could be prudent to place Market Orders going into the Bank Holiday weekend to catch surprise moves.

President Donald Trump took to twitter to fuel the debate on legislation to keep the U.S. government open next month. Trump blasted Republican leaders for ignoring his advice on raising the debt ceiling and creating a “mess.” Countering, House Speaker Paul Ryan said the borrowing limit will be raised. Rates on short-term Treasury bills spiked amid concern Congress and the White House may not act in time.

The day ahead

The last day before a bank holiday weekend begins with German business sentiment data at 9am and will finish with US durable goods orders in the early afternoon. The focus will no doubt be on Grand Teton National Park and more specifically the Jackson Lake Lodge where Janet Yellen and Mario Draghi are due to speak. Markets await any indication of future monetary policy with eager ears.

Thought of the day

A couple were left stunned after honey started to seep through their ceiling because of a hive of thousands of bees had formed in their attic. The swarm was discovered at the Grade II listed 18th Century house in Leicestershire. The owners grew concerned after finding a "sticky substance" in their light fittings. They later discovered sweet honey pouring down through the ceiling of one of their bathrooms. In the world of FX the Euro has been creating a buzz of its own. Gaining 10% against the Pound this year, it seems that there is no stopping the Euro rally! With recent forecasts suggesting parity and below, is it time to consider the numerous ways to mitigate your risk? How about looking at a forward with an added sweetener? A Participating Forward allows you to have 100% protection, whilst benefitting in upward participation (for a pre agreed percentage) should the market move in your favour at expiry. To discuss alternatives to forwards, please call your Investec Dealing team on 0800 055 6339.

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