Today's data releasesKey levels
09:30UK CPI & PPI & Retail price indexSupport
10:00EU CPIGBP/USD1.3050
12:00US MBA mortgagesGBP/EUR1.1247

Market overview

It’s day 3 in our new offices and agile working (not having your own specific desk) is in full force at Investec now. Whilst I had a few concerns about how the new set-up would work for the FX dealing team, I can honestly say that this is the “sound of the future” (fitting backround music whilst I type would be ‘Giorgio’ by Daft Punk!)


As for the markets, yesterday was another rollercoaster for Theresa May. The government had chosen to back all four amendments to the Customs Bill that had been tabled by Tory Eurosceptics on Monday. Though all four were passed, the Prime Minister came within a whisker of suffering a defeat in the Commons with the most contentious motion winning by just 305 to 302 votes. The subject of the narrowest vote was an amendment put forward by Jacob Rees-Mogg, which would prohibit the UK from handing over tariffs collected at British borders to the EU unless the latter similarly did so on a “reciprocal basis”. There were also further resignations, with government members Scott Mann and Guto Bebb both quitting on Monday (albeit from opposite sides of the Brexit debate).

Last night the government scraped a victory in the Commons yesterday over an amendment that would have forced the Prime Minister to join a customs union with the EU if it failed to agree a free-trade area with Brussels by 21 January 2019. It was a close call, with the government winning 307 votes to 301.


Sterling had weakened throughout afternoon amid fears that the government would suffer a defeat on the amendment, with the selloff accelerating after another amendment (aimed at keeping the UK a member of the European Medicines Agency) surprisingly passed. This marked only the second time the government has been defeated on Brexit legislation and prompted fears another was shortly to follow. Downward pressure has continued on the pound in early trading today amid the fragile political situation


Yesterday morning’s UK labour market report did little to move markets. Whilst the unemployment rate remained at 4.2% in May, on consensus and in line with Investec forecasts, headline wage growth ticked down to 2.5% on a 3 month yearon-year-basis from an upwardly revised 2.6% in April. Overall there was a muted market reaction to the mixed report, which has done nothing to derail the possibility of an August rate hike. As it stands an August 2nd rate hike is currently 90% priced in by the market; which is a very similar position to where it was prior to the release.

If you were keeping a close eye on the market yesterday afternoon however you would have noticed that the pound fell sharply after midday, as mentioned above. Adding further to sterling’s woes were Carney’s warning, that the UK will endure significant economic pain in the event that the UK were to fail to secure a trade deal with the EU, didn’t help either. Some analysts have suggest a the pound could easily fall a further 5% from here, should this eventuality ensue.


Stateside, Fed Chair Jerome Powell testified to Senate Banking Committee. He said that higher tariffs would be bad for the US economy especially if they were in place for a long period of time. On interest rates he said that the best way for now would be to gradually raise interest rates. With regards the economic outlook, he played with a fairly straight bat keeping the wording pretty consistent with that set out in the Fed’s June meeting policy communications. In short, he continued to paint the economic and labour market in a solid light, albeit with trade policy discussions adding to the uncertainty around these. Overall, there is no clear shift in policy direction with the text suggesting the Fed is happy to continue with a gradual approach to rate rises.


In other news the Office of Budget responsibility has delivered a rather downbeat assessment for the UK’s public finances, warning that the long-term outlook will deteriorate if the government sinks more money into the NHS.

The day ahead

As for the day ahead, UK inflation will be the main focus this morning. Indeed, as we approach the 2 August monetary policy decision, the CPI inflation data takes on an added significance and will be viewed in the context of whether it will make a rate more or less likely. Our economists expect to see CPI inflation rise to 2.7% from 2.4% in May. Stateside Jerome Powell will give the second leg of his testimony before the House Financial Services Committee and the latest Beige Book will also be released. In the Eurozone the focus will inflation numbers too.

Thought of the day

Today marks 100 years since the birth of the inspirational leader, Nelson Mandela. Born in a small down in the Eastern cape, Mr Mandela was a leading revolutionary against apartheid before rising to serve as President of South Africa from 1994 to 1999. It was also 100 years ago that the first world war ended and the countless events that have since followed have shaped the world we live in today. We don’t have to look to far in the past for milestone events in the markets as it was around 100 days ago that GBPUSD rose to a post-Brexit high of 1.4325, largely fuelled by expectations of an imminent rate rise in the May Bank of England meeting. 100 days on and expectations of a rate rise in August currently stand at 88% and yet GBPUSD is falling and fast approaching 1.30. We can’t tell you where GBPUSD will be trading 100 days from now but Investec have the tools to ensure you will have certainty on your FX cover. To find out more, call your Investec dealer today.

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