All Eyes on Osaka

Markets remain hesitant as the G20 Summit kicks off, with focus on US-China trade relations and a potential truce.

Previous Day's Market Highlights

Markets struck a cautious tone on Thursday, with volatility remaining muted as market participants remained hesitant ahead of the G20 summit and trade talks between Presidents Trump and Xi. The dollar traded broadly unchanged against a basket of peers, showing little reaction to China's rumoured demands in trade talks - including the removal of punitive tariffs and the lifting of a ban on the sale of Huawei products. The chances of President Trump agreeing to such terms, especially after recent rhetoric, appear slim at best. Also failing to stimulate volatility in the greenback was a slew of economic data, with releases painting a mixed picture. The final estimate of 1st quarter GDP showed growth of 3.1%, in line with expectations and unchanged from the previous estimate. Perhaps of concern to investors, when examining the revised data, will be a fall in consumer spending which may weigh on growth in Q2. Other, lower-tier, releases included weekly jobless claims, which increased by 227k, the fastest rate since early-May, as well as pending home sales being released broadly in line with expectations, increasing at 1% on a month-on-month basis. 

Elsewhere, the pound remained within its recent trading ranges, as the ongoing Conservative Party leadership contest continues to keep market participants on the sidelines. Over the course of the day, sterling dipped 0.2% against both the dollar and euro. Speaking of the euro, the common currency proved resilient despite further disappointing soft data. June's economic sentiment survey showed business optimism falling to the lowest level since October 2014, while sentiment on the whole fell to a 3-year low. Although the market reaction was limited, the lacklustre sentiment data heightens the chances of additional ECB stimulus being required, with little sign of a significant uptick in economic activity on the horizon. Meanwhile, Thursday's biggest gainers were the Aussie and Kiwi dollars, with the antipodeans gaining 0.3% apiece, continuing their recent strong performance despite risk sentiment remaining fragile. 

Overnight, a number of data points have been released from Japan. Data showed unemployment holding steady at 2.4% for a second consecutive month, while industrial production decreased at a better than expected 1.9% on a year-on-year basis. However, offsetting those relatively positive releases were weak CPI figures from the Tokyo region, which increased at just 1.1% on a year-on-year basis, further evidencing Japan's struggle with benign inflation. The yen has largely held steady, ticking up around 0.1%. 

Volatility was also muted in other asset classes, ahead of the G20 summit. In Europe, the pan-continental Stoxx 600 added 0.1%, while the US benchmark S&P 500 added 0.4%, snapping its 4-day losing streak. Finally oil prices ticked up modestly, with both Brent and WTI gaining 0.2%, as concerns over both supply and demand continued to offset each other.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1140 1.1331 1.1127 1.80%
GBP/USD 1.2675 1.2784 1.2506 2.17%
EUR/USD 1.1375 1.1412 1.1151 2.29%
GBP/AUD 1.8070 1.8422 1.8061 1.96%
GBP/NZD 1.8900 1.9414 1.8886 2.72%
GBP/CAD 1.6590 1.7068 1.6575 2.89%

Today's Market Highlights

The month, quarter, and first half of 2019 concludes with a busy economic calendar. While markets are set to remain cautious due to the ongoing G20 summit, and hopes of a trade truce being agreed between the US and China, investors will have plenty of releases to chew over. 

Perhaps the most impactful release comes from the eurozone, with flash CPI figures for June due this morning. With the ECB continuing to mull additional stimulus, possibly as soon as July, the inflation figures will be closely watched. Expectations are for headline CPI to have increased at 1.2% on a year-on-year basis, unchanged from last month, and significantly below the ECB's 2% target. The typically less-volatile core measure, which removes the impact of food and energy prices, is expected to tick up to 1.0% on a year-on-year basis, also a subdued pace. A downside surprise would likely see markets price in additional policy easing, and should exert downward pressure on the euro. On the other hand, an upside surprise would likely do little to deter the ECB from policy easing, with other areas of the economy, such as manufacturing, remaining fragile. 

Meanwhile, from the US, inflation will also be in focus, with May's core PCE figures due. The index, which is the Fed's preferred gauge of inflation, has languished below the Fed's 2% target since March and is on a clear downward trend - one of a number of reasons markets price in around 80bps of rate cuts this year. May's data is expected to show prices increasing at 1.6% on a year-on-year basis, unchanged from last month. A continued benign pace of inflation should see markets price in further rate cuts, likely weighing on the dollar. Also due from the US will be final consumer sentiment data from the University of Michigan, expected to remain largely unchanged from the preliminary estimate at 98.0. Markets will also examine any comments from FOMC member Daly for hints of future monetary policy shifts. 

Turning to the UK, while focus will remain on political developments, economists will be able to sink their teeth into the final estimate of first quarter GDP. Growth is expected to remain unchanged from the previous estimate, at 1.8% YoY and 0.5% QoQ, though market participants will be looking for any signs of weakness that may feed into the 2nd quarter, for example a moderation in business investment. In the political sphere, the ongoing Conservative Party leadership election continues to cloud the outlook for sterling, and should see the pound remain within its recent ranges. 

Elsewhere, a number of other notable releases are due. From Switzerland, the monthly economic barometer (exp. 94.9) tends to prove a useful leading indicator of future economic activity. Also due, from Canada, will be April's GDP figures, expected to show growth of 0.1% on a month-on-month basis, in addition to the well-respected quarterly Bank of Canada business outlook survey. 

Finally, looking ahead to next week, July begins with the usual round of PMI surveys, expected to show continued divergence between the services and manufacturing sectors. Also due are labour market reports from the US and Canada, in addition to the Reserve Bank of Australia's latest rate decision. No change to interest rates is expected, though the RBA will likely continue to strike a dovish note.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP Final GDP (QoQ - Q1) 0.5% 0.5%
9:30am GBP Final GDP (YoY - Q1) 1.8% 1.8%
10:00am EUR Flash CPI (YoY - Jun) 1.2% 1.2%
10:00am EUR Flash Core CPI (YoY - Jun) 1.0% 0.8%
1:30pm USD Core PCE (YoY - May) 1.6% 1.6%
1:30pm CAD GDP (MoM - Apr) 0.1% 0.5%
3:30pm CAD BoC Business Outlook Survey