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1.28941.09731.63011.63021.241510:00EU construction output
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Market overview

Investors moved to safe haven assets, shying away from equities as the S&P suffered its biggest one-day fall since May. There were concerns in the US as senior economic advisor, Gary Cohn, was said to be upset over the President’s remarks on the violence in Virginia and that he was considering resigning.

UK retail sales increased in July as stronger spending on food offset a fall in the purchase of other goods, according to official figures. The volume of sales grew by 0.3% compared with June, according to the Office for National Statistics (ONS). However, the figure for June's retail sales growth was revised down from 0.6% to 0.3%. Sterling briefly benefitted before markets positioned themselves ahead of EU inflation figures and the release of the ECB account. Eurozone inflation data held steady at 1.3% during July. Inflation across the Zone has largely held pretty steady since May, but still a way below the European Central Bank’s 2% target.

Yesterday’s publication of the ECB account from its July Governing Council (GC) meeting reinforced many of the points made within President Draghi’s opening statement last month. On the economy, members of the GC widely agreed on the assessment that the economic expansion had continued to strengthen and broaden, and that the risks to the growth outlook were mostly balanced. Members were also generally in agreement on the assessment of the inflation outlook that, whilst the strengthening recovery had given confidence that inflation would gradually converge on the ECB’s target, there was still a lack of evidence pointing to a convincing uptrend in inflation at this time.

Although the account very much mirrored the ECB’s July statement there were a couple of interesting points. In particular, the account highlighted the degree of caution on the GC over its communication and its potential to impact - what it viewed was a market particularly sensitive to ‘incoming information’. One area that was noted twice in the accounts was some concern over the risk of the euro overshooting in the future. Also, more widely the ECB did see the potential risk of financial conditions tightening by a greater degree than was warranted by economic conditions. As such it was suggested that the ECB should consider a gradual approach to policy adjustment and that the GC would, in the autumn, consider the future stance of monetary policy. Overall there were no major revelations within the ECB account, but the tone of the record is very much that of a central bank taking a very cautious approach to the gradual movement away from its ultra-loose policy stance. Our central case continues to be for a tapering announcement at the October GC meeting, with asset purchase tapering over the first half of 2018. Off the back of this release EURUSD moved to a 3 week low 1.1662 and GBPEUR moved temporarily back above 1.1000.

The day ahead

Today sees a quieter day on the fundamental data front, EU current account data is released at 09:00, followed by EU construction output at 10:00. This afternoon we head to the States for Michigan Consumer Sentiment Index at 15:00; a slight increase to 94 against 93.4 is expected. 

Thought of the day

Candy floss grapes - an unusual combination that supermarket Asda has stocked on the shelves. The green grapes have the taste of candy floss and are the result of years of meticulous farming. Alberto Goldbacher is the fruit procurement manager and says it will get kids eating more healthily. What is next… bubble-gum plums? You guessed it; Asda has also purchased the equally distinctive combination. A slightly less curious combination is the Dual Currency Deposit; this combination is offered by the Investec FX Desk and is a deposit that pays an enhanced yield linked to a potential FX transaction. In a current low yielding environment it can be used as part of a portfolio approach to add something different to your current approach. Give us a call today on 0800 055 6339 if you want more information.

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