Mnuchin jawbones as ECB keeps mum
There was anecdotal evidence yesterday that the ECB was starting to be concerned about the strong euro. Reality was, however, slightly different as a slight rise in inflation was reported despite the strength of the currency. This, in addition to various pieces of evidence from individual member states show any concern to be premature.
Greece had remarkably strong retail sales growth and Spanish GDP beat expectations. While ECB President Mario Draghi is forthright in his view that the eurozone needs to be considered as a whole the individual members are starting to show that the whole is not greater than the sum of its constituent parts
Steve Mnuchin the US Treasury Secretary took a more American route, happy to confirm that he feels a weaker dollar is beneficial to US trade. This backed the President's pronouncements early in his term when he criticised some of America’s trading partners, most notably Germany, for taking advantage of a strong dollar to export more to the US.
The dollar which had benefitted from the rumours regarding the ECB took an abrupt U-turn having reached 1.1823 climbing back above 1.1900.
Brexit divorce needs mediation
Has there ever been a divorce where both parties sit in a room and agree the settlement without the need for mediation? Of course not, and so it is proving with Brexit, without doubt, financially, the biggest divorce ever. What Brexit has, is the caustic nature of Charles and Diana, without the glamour of Burton and Taylor!
Yesterday, the EU’s Chief Negotiator told anyone who would listen that the UK “did not feel legally obliged to honour its obligations” to the EU while David Davis countered that the EU need to act with more “flexibility and imagination”. In other words, pay up from one side and think again from the other.
Meanwhile, Mark Carney, the Bank of England Governor pulls his hair out in frustration as he tries to create a monetary policy which can provide some reassurance to businesses who have virtually shut up shop until they receive some clarity. That may take some time.
Barnier did at least acknowledge that there has been some progress on the question of the Irish border. Given that was always the least contentious of the three EU demands, he has simply “damned the UK with faint praise.”
US employment to set the tone for the end of the quarter
There are, as ever, high hopes for the US employment data that will be released later today.
The past two months have each shown headline growth of 200k+ new jobs created, although the July figure is still subject to revision. Were todays figure to be similar, all Mr. Mnuchins efforts will have been in vain. Following this week's stronger than expected GDP data for Q2, the market is eagerly awaiting further encouragement to look forward to a further rate hike this year. Since other G7 Central Banks (except for Canada) are on hold there is potential for a prolonged correction in the dollar should interest rate differentials widen.
Speaking of Canada, a much higher than expected Q2 GDP figure has raised expectation considerably for a further hike at next week’s Bank of Canada meeting.