Sterling steadily lost ground as the Bank of England held interest rates at 0.1%, in line with consensus forecasts and there was a further £100bn increase in the asset-purchases ceiling to £745bn. The bank also expects to slow the rate of bond purchases significantly over the remainder of 2020. The committee stated that the economic outlook was less severe than expected at the May meeting with second-quarter GDP likely to register a 20% contraction, although there was still a high degree of uncertainty over the outlook with particular concerns over the labour market. Sterling initially rallied but selling quickly resumed as markets were sceptical over the bank’s stance with Sterling falling to 1.2400 against the Dollar and 1.1060 against the Euro.
UK consumer confidence recovered slightly to -30 from -36 according to the preliminary June reading. Retail sales recovered strongly in May with a 12.0% increase following an 18.1% decline previously and well above consensus forecasts of 5.7% with a 13.1% annual decline. Government borrowing increased to a record £54.5bn from £47.8bn previously.
The US Philadelphia Fed manufacturing index recovered strongly to 27.5 for June from -43.1 the previous month and well above consensus forecasts of -23.0. Shipments and new orders also strengthened sharply on the month with a smaller than expected recovery in unfilled orders. There was a further decline in employment, although job losses were at a slower pace with a small increase in costs for the month. There was also a further strengthening in the 6-month outlook.
Initial jobless claims declined slightly to 1.51mn in the latest week from 1.57mn the previous week and above consensus forecasts of 1.30mn. Continuing claims were also above consensus forecasts at 20.54mn from 20.61mn the previous week.
The Euro was unable to gain any support ahead of the US open and gradually lost ground as the Dollar gained support as global equity markets moved lower. The ECB announced that Euro-zone banks had EUR1.3trn in the first TLTRO auction under more favourable terms which helped curb bond yields. There were comments from German officials that real negotiations on the EU recovery fund would start next week, dampening expectations of progress at this week’s Summit.
Overall risk conditions were slightly more fragile with the Euro retreating against the Dollar to the 1.1200 area where it trades currently with markets continuing to monitor the EU Summit meeting during the day.
Data to watch
All day EUR - EU Economic Summit
18.00 USD - FED Chair Powell speaks
Posted in Daily Market News on Jun 19 2020