Daily Brief

"No one in politics is indispensable"

Johnson resigns

After immense pressures to resign, and a slew of high-profile ministers deserting his cabinet throughout the week, Boris Johnson has finally agreed to resign as the Conservative party leader. He will remain as the UK prime minister until a new leader of the Tory party is decided. In his recent resignation speech, Johnson thanked the public for the ‘immense privilege you have given me’ and how much of a shame it was for him not to be able to see through so many ideas and projects, as ‘no one in politics is indispensable’. The pound has been in a slight upward path since the news of his possible resignation broke. GBP/USD broke over 1.2000 for a spell, and GBP/EUR moved over 1.1750. However, the pound is far more likely to be guided in the long-run by the likes of the BoE, rather than short-term headline moves on political developments.

A hawkish Fed, but is it old news?

The latest minutes from the June FOMC meeting, released yesterday evening, highlighted the Fed’s concerns that inflation could become entrenched if the public questions the Fed’s resolve. Participants ‘concurred’ that high inflation warranted ‘restrictive’ interest rates, with the possibility of a ‘more restrictive stance’ if inflation persists, said the Fed. They also see a 50bps or 75bps hikes at the next (July) meeting. For once, markets took the Fed’s comments in its stride, with little material moves across the asset base post the Fed. Risk assets had a better day throughout yesterday, with most high-profile indexes in positive territory by the close. Perhaps there was a sense that these FOMC minutes may already be slightly out of date, given the recent worries.

The dollar remains king

The greenback retained those recently-gained advances, but they were as much to do with investor concerns over a possible global recession, than the Fed’s stance on inflation, or comments from the FOMC meeting. Indeed, with markets fully pricing in 75bps this month from the Fed, the interesting time for us comes after the summer recess, and whether the U.S economy will still be in a position to withstand a similar move (75bps) as was the case in June and will very likely be the case in July.

Next stop parity?

The dollar index remains within a whisker of the recent 107.00 top. EUR/USD slipped to another 20-year low, this time at 1.0160. The market can almost smell parity from here, so it would not take an economic wizard, or a Doc with a DeLorean to guesstimate that markets might just attempt to try and see what is under that magical 1.0000 region. On the data front, the latest EZ Retail Sales missed estimates, with a 0.2% (YoY/May) reading, against consensus estimates of 5.4%. Elsewhere, USD/CAD remains just above 1.3000, with Brent now joining WTI under $100bpl.

ISM Services PMI

The latest U.S ISM Services PMI was released a little earlier in the day, before those FOMC minutes. Whilst the headline index slipped to 55.3 from 55.9, that was somewhat better than had been expected, with estimates at around 54.5, reflecting that business activity in the service sector is expanding at a softer pace, as broader weakness emerges in the economy. At the same time, the latest S&P Global Composite and Services PMI readings were released, and both exceeded estimates.

What should we be looking at today?

Whilst there are key speeches from the FOMC’s Bullard and Waller later today, the latest ADP (Private payroll) data is the one to watch. The ADP is normally released two days before the main payroll report, but because of the U.S holiday on Monday, the ADP is being released today. A 200k print is expected for the ADP, up from last month’s 128K reading, which reflected the slowest job growth since the beginning of the pandemic. If there is a big deviation from the expected number, it could have an impact on forecasts for the main June payroll report, which are currently sitting at 270K on the headline, down from 390K previously.


What else is happening today?

EUR – ECB’s Lane speech

USD – ADP Employment Change, Continuing Jobless Claims, Goods and Services Trade Balance, Initial Jobless Claims, Fed’s Bullard & Waller speeches

CAD – Imports/ Exports, International Merchandise Trade, Ivey PMI

GBP – BoE’s Pill speech

JPY – Overall Household Spending, Bank Lending, Current Account, JP Foreign Reserves, Trade Balance


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