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No great expectations for the Fed

Looking on the bright side

Sterling came exceedingly close to taking gold on Tuesday, missing out only narrowly to the Japanese yen. While there were no up-to-the-minute UK economic data to encourage buyers, the anecdotal evidence was supportive and the prospect of Britain opening its doors to foreign visitors was well-received by investors.

A study by the Office for National Statistics revealed that retail sales have more than doubled since 1989, helped by an increase of more than two thirds in household disposable income. House prices are now 30% higher than they were at their peak prior to the 2008 global financial crisis. An updated and more optimistic World Economic Outlook from the IMF included a sharp upgrade for Britain’s economy this year, which it now sees expanding by 7% in 2021, “the same as the United States and the joint-fastest growth rate among major advanced economies”.

Politically, there is said to have been a U-turn in Downing Street’s attitude to non-NHS vaccination certificates. The expectation is that there will be an announcement today that vaccination passports from the USA and EU will spare those carrying them the need to quarantine, as the UK version already does. The generally upbeat tone of the news took the pound an average of 0.4% higher against the majors.

 

Much as expected

No surprises were to be found among the economic data published yesterday and overnight. Every number came in close to analysts’ forecasts.

Even the notoriously unpredictable US durable goods orders were within bounds. Although the 0.8% monthly increase for June was smaller than the forecast 2.1%, at least it was on the same side of zero, which is by no means always the case. House price indices from FHFA and S&P were not far adrift from one another, with annual increases of 18% and 16.6%, respectively, in the year to May. The Richmond Fed’s manufacturing index was a point higher on the month at 27 and the Conference Board’s measure of consumer confidence was almost unchanged at 132.6, close to its highest since February 2020.

Overnight, the Australian consumer price index data put headline inflation for June at 3.8%, up from 1.1% in March, and the Reserve Bank of Australia’s “trimmed mean” at 1.6%, both exactly in line with forecast. There was minimal reaction from the Aussie dollar.

 

Fed to stick

The biggest item on today’s agenda is the US Federal Reserve’s rate decision at 1900h and the chairman’s subsequent press conference. Few analysts foresee any change to policy, or to the guidance that the current upturn in inflation is “transitory”.

Europe’s day began with ecostats from the UK, Norway and Germany. In Britain, Nationwide’s house price index fell 0.5% in July, bringing the annual increase down to 10.5%. Norwegian retail sales fell 0.1% in June, leaving them unchanged from the same month last year. German consumer confidence came in lower than expected at -0.3.

The rest of this morning’s European numbers cover Swedish retail sales, Italian business and consumer sentiment, and Swiss business confidence. This afternoon brings the US trade deficit and Canadian inflation, expected to be a little lower on the month at 3.2%.

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