Market Brief: Migration deal over the line

EU leaders managed to come to an agreement in the early hours of the morning on how to deal with rescued migrants.

Today's data releases Key levels
09:30 UK final release of Q1 GDP   Support
Resistance
10:30 EU CPI June GBP/USD 1.3040
1.472
13:30 US core CPE (inflation) GBP/EUR 1.1151
1.1520
Today's data releases Key levels
09:30 UK final release of Q1 GDP   Support
Resistance
10:30 EU CPI June GBP/USD 1.3040
1.472
13:30 US core CPE (inflation) GBP/EUR 1.1151
1.1520

Market overview

From the world outside these four walls, the big news is that EU leaders managed to come to an agreement in the early hours of the morning on how to deal with rescued migrants. The summit came close to collapse after Italy threatened to veto the conclusion of the summit’s entire agenda if migration wasn’t addressed. Under the agreed accord, migrants rescued at sea will be sent to “controlled centres” across the bloc which will serve to distinguish between refugees in need of international protection and “irregular” asylum-seekers who would be sent back. Originally, France and Italy had pitched a more ambitious plan, though this was watered down to make such centres voluntary in a concession to central European states who opposed compulsory quotas for refugees. Though the euro strengthened after the deal was announced, it isn’t clear at this stage whether it will be enough to defuse a political crisis between German Chancellor Angela Merkel and her CSU coalition partners. In terms of Brexit discussions, these are set to get underway today. Reports suggest talks will start at a later-than-scheduled 11:00am due to the late finish of the migrant debate.
 
In the UK, we heard from Bank of England economist Andy Haldane yesterday, the man who dumfounded the market last week with his vote to increase rates. The man himself was surprised by the reaction saying that it should not be considered “surprising or radical”. He mentioned that he saw rising pay pressures and that he likely would have voted for an increase in May, a month earlier, had the economic data been better. Since then he commented that the data on the consumer had “virtually without exception” bounced back as he had expected. This is an interesting one given a survey conducted by GfK, released this morning saw consumer confidence falling in June. Finally, he marked himself as something of a pragmatist by saying that there would always be some data that disappoints. He commented “But waiting for something to turn up is not a prudent strategy in life. And waiting for everything to turn up is certainly not a prudent strategy for monetary policy”.
 
It’s got to the fourth paragraph and we haven’t mentioned Brexit yet, hurrah! If of interest, U.K. Prime Minister Theresa May accused the European Union of putting the safety of its 500 million citizens at risk by blocking a broad Brexit deal on security, as the atmosphere surrounding negotiations soured. At the EU Summit yesterday Theresa May made her case that the UK wants to have a voice which is heard after it leaves the bloc but commented that “Our ability to do so is being put at risk”.

The day ahead

The weekend isn’t quite here so before you get ahead of yourself have a think about what is to come. We get a slew of UK data points at 09:30, with the focus on the final reading of Q1 GDP. This is expected to come in at 0.1%, the same as the previous reading. We also get the latest Euro area inflation figure for the month of June at 10:00. Finally across the pound we get the latest reading of the Core Personal Consumption Expenditure Price Index at 13:30 which is the Fed’s favourite measure of inflation. Then the Chicago Purchasing Managers’ Index and Michigan Consumer Sentiment Index at 14:45 and 15:00 respectively. 

Thought of the day

The reigning World Champions are out! Yes, Germany arguably the most successful team in World Cup history were sent packing at the Group Stages yesterday after being beaten 2-0 by South Korea. It’s a reminder to everyone that you cannot take anything for granted.
 
Similarly, in currency markets, it’s very easy to get sucked into the belief that the exchange rate will behave as you expect or as analysts expect. Remaining in the spot market can of course be rewarding when the market moves in your favour, but never take it for granted that something unexpected could happen (akin to Germany being knocked-out after just three games). With this in mind, having a robust FX strategy that looks to protect yourself against adverse moves, yet allows you to participate in favourable moves, might well be worth exploring. Please speak to your Investec FX dealer today to find out more.

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