16 Jul 2018
Up this week
In the UK, we will be keeping a very close eye on the political soap opera amidst ongoing speculation over whether PM Theresa May will face a vote of no-confidence.
Reports continue to suggest that the Chair of the backbench 1922 committee, Sir Graham Brady, is not far away from holding the 48 Tory MP ‘no confidence’ letters necessary to trigger such a vote. If/when, Sir Brady has 48 such letters from MPs on record, we can expect a no-confidence vote to be called with the possibility of a leadership contest following. Aside from this, we are also set to see the Brexit customs and trade bills return to Parliament for discussion.
Aside from politics, we also have some big ticket data releases due in the UK. As we approach the 2 August monetary policy gathering, next week’s CPI inflation and labour market releases take on an added significance and will be viewed in the context of whether they make a hike in Bank rate more or less likely. We expect to see CPI inflation rise to 2.7% from 2.4% in May. For the record, we suspect a 25bp increase in Bank rate (to 0.75%) on 2 August is more likely than not. Finally, note that from the Bank of England we are also set to hear from Governor Carney, Deputy Governor Jon Cunliffe, FCA Chief Executive Andrew Bailey and Elisabeth Stheeman, member of the Financial Policy Committee. They are set to appear before the Treasury Select Committee on Tuesday, giving testimony on the recent Financial Stability Report.
Europe this week
In Europe, the week kicks off with Donald Tusk chairing an EU-China summit, where trade (and US tariff’s) will no doubt be high on the agenda. Otherwise we have a fairly quiet week in Europe, with only June inflation figures released on Wednesday of any note.
US and ROTW this week
Stateside, the week begins with Trump heading to Finland to meet Russian President Vladimir Putin. The week will include Fed Chair Jerome Powell’s semi-annual monetary policy testimonies to the Senate Banking Committee and the House Financial Services Committee. One thing markets will be watching for is signs that the Fed is gearing up for a possible step up in its pace of policy normalisation, having announced that a press conference will take place after every FOMC as of January 2019. The US week will also see the release of the Fed’s Beige Book alongside numerous data releases including June’s retail sales figures and July’s Empire State and Philadelphia Fed manufacturing surveys. Lastly, note that in other major economic releases we will see China’s second quarter GDP numbers released. Early expectations are for a pickup in the quarterly growth pace to 1.6% from 1.4%, but with the year-over-year growth rate expected to have edged down to 6.7% from 6.8%. Amidst some concerns over Chinese economic momentum, not helped by the tariff dispute with the US, these figures gain an added sense of importance for markets.
China economic data
GDP figures for the second quarter of 2018 were released overnight. They showed the year-over-year pace of GDP growth slowing from 6.8% to 6.7%, matching consensus expectations but with this marking the slowest growth pace since 2016. Industrial production figures also showed the quarter ending on a more subdued note than markets had expected with output 6.0% up year-over-year in June, falling short of the 6.5% market consensus and down from the 6.8% May print. Retail sales figures took some of the edge off this disappointment standing 9.0% up year-over-year in June, beating the 8.8% consensus, but this was not enough to leave Chinese equities feeling positive, with the Shanghai Composite down 0.8%. The 6.7% Q2 GDP growth reading is still above the full year growth goal of “around” 6.5%, but it looks to add to nerves that China’s trade spat with US, and perhaps also China’s own reforms, might be leading to an edging down in the growth pace.
Irish Banks: Mortgage rates remain the highest in the Eurozone
Data from the Central Bank of Ireland released on Friday confirm that Irish retail mortgage interest rates remain the highest in the Eurozone. The CBI data show that average mortgage rates in Ireland in May were the highest in the Eurozone at 3.21% (total outstanding stock), vs an average across the rest of the EZ of 1.80%. The volume of new mortgage agreements amounted to €681m in May 2018, bringing new agreements to €7.22bn over the past twelve months. From a consumer preference perspective, the shifting trend towards fixed rate products continued in May, with 54% of new mortgage agreements over the previous three months being fixed rate in nature, with the average fixed rate year-to-date being 3.10%. The average rate on newly agreed variable rate products in Ireland year-to-date was 3.30%. While competitive dynamics have heightened across the Irish mortgage market in the last 12 months, headline interest rates available on new mortgage business remains attractive relative to other banking sectors within the Eurozone.
10.00 EC Trade Balance
13.30 US Empire Manufacturing
13.30 US Retail Sales