Developed equity markets finished the week marginally lower, five days that was ultimately dominated by geological rather than geopolitical events, as the east coast of America prepared for a series of hurricanes and Mexico was hit by an earthquake. US treasuries stay in demand as yields on the ten-year remain close to lows for the year. The price of gold, which as a negative yielding asset, moves in an adverse direction to US treasury yields rose on the week, closing just below $1350 an ounce. The price of oil which had seen something of a bounce due to the threat of supply disruption fell sharply on Friday as many of the refineries are starting to get back on line recovering from the impact of hurricane Harvey.
The decline of the US dollar continued, now its longest losing streak in 14 years according to the Financial Times. As Brexit seems to continue domestic news headlines, and despite the release of manufacturing and industrial production for the month of July that was slightly below expectations the pound is now back above 1.32 against the green back.
The British Chambers of Commerce released on Friday its quarterly report for the UK economy and presented a downbeat picture, however they did modestly increase their expectations for economic growth this year from 1.5% to 1.6%.
The change in sentiment towards the path of interest rates in the coming months seems to be reversing. We commented on Mario Draghi’s ECB meeting in Friday’s piece in which he attempted to talk down the euro as he reiterated the Bank’s position that negative rates will remain for some time. The current uncertainties surrounding the UK economy means that UK interest rates are unlikely to move much, and the markets are now placing a less than fifty percent chance the Fed will move again this year, despite the weakness of the US dollar.
We may well find out more this week as to how the Bank of England view the current economic situation as we get the monthly rate decision and the minutes of the latest Monetary Policy Meeting on Thursday. This will follow the release on Tuesday of a series of inflation data points including August’s Retail Price Index. Consensus forecasts are for core inflation to rise 0.1% to 2.5% year on year. Then on Wednesday, we get the latest average earnings data. Expectations are for average earnings to pick up slightly in August, however, they are anticipated to remain below the current inflation rate, which may well continue to impact consumer sentiment.
Aside from the ongoing effect of the storms on the east coast, inflation will also probably dominate the economic data from the US. The month on month inflation rate is forecast to rise modestly, however, the year on year core inflation rate is forecast to remain at 1.7%. Another eagerly anticipated event this week will be the expected to release the iPhone 8.