Euro holds ground
The euro held its ground against the dollar at the end of last week. The single currency dipped below $1.09 at the start of last week but halted its slide and picked up slightly, and is holding up now at around $1.0850 despite some better economic data in the US in recent days. Against sterling, the euro also lost a bit of ground early in the week but bounced off 84p mid week to end the week a bit firmer at 84.4p. The pound slipped against the dollar and kicks off today at around $1.2870. Focus this week will be on the Fed FOMC meeting which concludes on Wednesday, the BoE MPC on Thursday – with the market pricing in a close decision with c.55% chance of a 25bps cut – and ending with US non-farm payrolls on Friday.
Equities rallied on Friday following 3 days of slumps. The S&P 500 gained 1.1% in Friday but that wasn’t enough to offset the sizable 2.3% fall on the previous Wednesday so the index ended the week down slightly, 0.8% for the week, a second consecutive weekly loss. It was a similar pattern in Europe, with the Eurostoxx rallying into Friday after a couple days of losses but that index did manage to post a weekly gain, albeit just 0.7%.
US PCE inflation data on Friday was in line with expectations. Headline and core prices rose by 0.1% and 0.2% month-on-month respectively in June, with the annual rates of inflation ticking down to 2.5% (from 2.6%) and unchanged at 2.6% respectively. That outturn, which was broadly in line with consensus forecasts, didn’t shift the dial on rate expectations with the market still fully pricing in a first rate cuts of 25bps in September. US Government bond yields did fall on Friday with 2-, 5-, and 10-year yields each down about 5bps for the day.
Data also showed that US spending is holding up, real consumer spending rose by 0.2% month-on-month in June while May’s gain was revised slightly higher to 0.4%. June’s increase is more modest but still solid while the data also showed that income growth is also continuing but slowing, to 0.2%, from a revised lower 0.4% gain the previous month. Combined with the PCE data, this all points to the Fed having the space to start cutting in September as expected.
Not a lot of data scheduled for today, mortgage approvals in the UK and Q2 provisional GDP in Ireland. However there is a full state of data over the rest of the week with European GDP data, inflation, final PMI’s, confidence data and two central bank meetings as well as US payrolls, so a busy week ahead.