US Consumers In Focus

Sterling seems unfazed by a Boris Johnson premiership as the SNB keep rates on hold ahead of today's US retail sales and consumer sentiment releases.

Previous Day's Market Highlights

The pound traded largely unchanged on Thursday, despite Conservative leadership frontrunner Boris Johnson - who has pledged to leave the EU, deal or no deal, on 31st October - taking a significant step closer to Number 10. The 1st round of voting in the Conservative Party leadership contest showed Boris gaining 114 votes, meaning that, barring losing votes to other candidates, Johnson will be one of the 2 candidates on the ballot paper put to Tory members. Opinion polling shows the Conservative Party membership leaning heavily in favour of Johnson, hence the race appears to be his to lose. However, rumours abound that some of the other, lower placed candidates in the race - for example Matt Hancock and Sajid Javid - may be looking to form an alliance with 2nd placed contender Jeremy Hunt. It was however less positive news for other candidates, with 3 (Leadsom, McVey and Harper), eliminated from the contest. For the pound, the prospect of a Boris Johnson premiership seemed to cause little reaction, with sterling remaining well-confined to its recent trading ranges on Thursday. 
Elsewhere, the dollar recorded modest gains, adding 0.15% against a basket of peers, despite a number of disappointing second-tier data releases. Weekly jobless claims increased by 222,000, a 5-week high, while both import and export price inflation missed estimates - the former falling by 1.5% on a year-on-year basis, the biggest fall in 5 months. Meanwhile, the euro dipped by 0.2% against the dollar, briefly touching a 1-week low just below $1.1270. Other currencies were also rangebound, with the Aussie dollar shedding 0.3% after disappointing labour market figures and the loonie ticking up by 0.1% as a result of firmer oil prices. 
Turning to central banking, the Swiss National Bank kept policy settings unchanged, leaving rates at record-lows of -0.75%, though emphasised the available headroom to loosen policy further if necessary. Chairman Jordan also stated that globally, the time for rate hikes has been ‘pushed back’, further diminishing the already slim chances of the SNB tightening policy during this economic cycle. As mentioned yesterday, the SNB remain primarily concerned with the valuation of the Swiss franc, due to the small but open nature of the Swiss economy. The Bank commented that the CHF remains “highly valued”, and pledged to remain active in the FX market as necessary. However, markets largely ignored the SNB’s messages on Thursday, with the franc adding just 0.1% over the course of the day. 
Away from FX, equity markets returned to winning ways on both sides of the Atlantic. In Europe, the pan-continental Stoxx 600 added 0.15%, while the US benchmark S&P 500 gained 0.4%. Finally, oil prices surged on Thursday after an attack on two tankers traversing the Gulf of Oman sparked concerns over supply due to increasing geopolitical risk. Benchmark Brent added 2.6%, while US WTI crude gained a shade over 3%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1230 1.1462 1.1194 2.34%
GBP/USD 1.2670 1.2815 1.2558 2.01%
EUR/USD 1.1275 1.1348 1.1107 2.12%
GBP/AUD 1.8360 1.8617 1.8113 2.71%
GBP/NZD 1.9365 1.9678 1.9053 3.18%
GBP/CAD 1.6895 1.7135 1.6795 1.99%

Today's Market Highlights

Focus will fall on the US consumer today as the trading week draws to a close with the release of both retail sales and consumer sentiment figures - the last 2 major releases before next week’s Federal Reserve policy decision. Markets expect retail sales to have increased by 0.6% in May compared to a month earlier, bouncing back from April’s 0.2% decline. Of more interest will be the less-volatile core (excluding auto sales) and control group figures, both expected to increase by 0.4% on a month-on-month basis. Turning to sentiment, markets expect preliminary June consumer sentiment figures from the University of Michigan to decline slightly to an index level of 98.0, though this would still represent a relatively upbeat consumer. Better than expected sales and sentiment would be a sign of increased consumer spending, a factor likely to underpin US economic growth due to the heavily consumer-driven US economy. An upbeat set of releases would also likely underpin the dollar, though risks appear to the downside, with a below-forecast print set to further fuel the Fed rate cut frenzy. 
Elsewhere, there are no major economic releases from any other G10 economy, hence volatility may once again remain muted. For the pound, focus will remain on ongoing political developments, in addition to a speech this afternoon from Bank of England Governor Carney. Any hawkish comments may result in a brief sterling rally, though any strength is likely to be short-lived due to ongoing political uncertainties. Today’s only other notable event is a speech from the ECB’s Lautenschlager this morning. 
Turning to next week, monetary policy will be the main focus, with the Federal Reserve set to announce their latest policy decision on Wednesday. Markets have heavily priced in rate cuts from the Fed, hence will be looking for accommodative language to open the door to looser monetary policy in the near future. The Fed’s latest dot plot, showing individual policymakers’ expectations of the future path of interest rates, will also be closely watched for any signs of more accommodative policy on the horizon. The BoJ and BoE also announce rate decisions next week, with neither is expected to make any policy tweaks, though the BoE may continue its recent hawkish tone. Other notable releases include final CPI (Tues) and flash PMI (Fri) figures from the eurozone in addition to inflation readings from the UK and Canada. Also in focus will be the continuing narrative of US trade relations, in addition to further rounds of voting in the Conservative Party leadership contest.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD Retail Sales (m/m - May) 0.7% -0.2%
1:30pm USD Retail Sales ex Autos (m/m - May) 0.4% 0.1%
1:30pm USD Retail Sales Control Group (m/m - May) 0.4% 0.0%
3:00pm USD Prelim. University of Michigan Consumer Sentiment Index 98.0 100.0