- SNB Libor rate: unchanged at -0.75% as expected
- SNB sight deposits rate: unchanged at -0.75% as expected
- U.K. retail sales m/m: 0.9% vs. 0.2% expected, 1.9% previous
- U.K. retail sales y/y: 6.0% vs. 3.9% expected, 5.2% previous
- U.K. core retail sales m/m: 1.0% vs. 0.3% expected, 2.0% previous
- U.K. core retail sales y/y: 5.7% vs. 3.8% expected, 4.8% previous
- Euro Zone final HICP y/y: unchanged at -0.1 as expected
- Euro Zone final core HICP y/y: unchanged at 0.8% as expected
- MPC meeting minutes: 9-0 vote to hold main rate 0.50% as expected
- MPC meeting minutes: 9-0 vote to maintain asset purchases at £375B as expected
All eyes were on the pound and the Swissy during the morning London session, thanks to the SNB and MPC monetary policy decisions. Price action on the pound was rather choppy, though, but at least there was some action on Swissy pairs.
Upside surprise for U.K. retail sales – The annual and monthly readings for both headline and core retail sales in May were all able to beat expectations. Headline retail sales volume, for example, increased by 0.9% month-on-month, which is much better than the expected 0.2% increase.
Not only that, the previous reading was upgraded from 1.3% to 1.9% as well. The increase in sales volume was broad-based, with the 4.3% increase in sales from clothing and footwear stores, which account for around 12.5% of total sales volume, being the most impressive.
Risk aversion strikes back – Yesterday’s bout of risk appetite was just temporary it seems since risk aversion was back in full force, with the pan-European FTSEurofirst 300 down by 0.78% to 1,261.50, the blue-chip Euro Stoxx 50 down by 0.93% to 2,808.50, the U.K. FTSE 100 down by 0.77% to 5,921.00, and the DAX down by 0.95% to 9,515.50.
U.S. equity futures also got burned, with the S&P 500 futures index down by 0.42% to 2,054.75 and the Nasdaq futures index down by 0.49% to 4,383.75.
Market analysts pointed out that banking stocks were the main losers, attributing the general risk aversion to Brexit jitters.
SNB monetary policy decision – As expected, the Swiss National Bank (SNB) maintained its current monetary policy, so the target range for the Libor rate is still between -1.25% and -0.25%, with the median target rate at -0.75%. The interest rate on sight deposits, meanwhile, still stands at -0.75%.
Regarding outlook, the SNB’s still forecasts that GDP growth for all of 2016 would be 1.0% and 1.5%, but the SNB upgraded its inflation forecasts from -0.8% to -0.4% for 2016 and from 0.1% to 0.3% for 2017, citing “the significant increase in oil prices in the intervening period.”
SNB Head Honcho Thomas Jordan was also interviewed by Bloomberg and he clarified that the SNB’s outlook assumes that Britons will vote against a Brexit, and that a Brexit would mean that the SNB’s projection would have to be reassessed. Jordan also warned that the SNB can still push rates deeper into negative territory, if needed.
Finally, Jordan didn’t skip a beat and repeated the SNB’s mantra that the Swissy is “still significantly overvalued” and that the SNB will continue to intervene in the forex market, in order “to make Swiss franc investments less attractive, thereby easing pressure on the currency.”
MPC rate decision and minutes – The BOE’s MPC released the minutes for its monetary policy huddle earlier, and below are some of the more important points in, well, bullet points for easier reading:
- 9-0 vote to hold main rate 0.50% as expected
- 9-0 vote to maintain asset purchases at £375B as expected
- Annual inflation in May came in at 0.3%, still well below the BOE’s 2.0% target
- Weak inflation “due predominantly to unusually large drags from energy and food prices“
- Aforementioned drags are expected to fade by next year
- The pound “would fall further, perhaps sharply” of a Brexit occurs
- BOE based its conclusion on the pound’s recent price action whenever polls are released
- Further declines for the pound are also fundamentally sound because of “worsening terms of trade, lower productivity, and higher risk premia“
- The outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets.
- Monetary policy is data-dependent, but still biased towards a future rate hike
- However, said monetary policy bias assumes an anti-Brexit vote
- A Brexit would mean that “the MPC would face a trade-off between stabilising inflation on the one hand and output and employment on the other“
- In the event of a Brexit, the BOE will do whatever it takes “to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon“
New Brexit-related poll – A new poll from Survation was published shortly after the BOE released its MPC meeting minutes, and it showed that the “leave” camp was still in the lead at 45% versus the “remain” camp’s 42%, which probably added to the Brexit jitters.
Major Currency Movers:
GBP – The pound’s price action was rather choppy and mixed but was showing more signs of strength than weakness, probably because forex traders were more focus on the very positive retail sales report or or pound shorts were taking profits off the table.
GBP/USD was down by 8 pips (-0.06%) to 1.4134, GBP/AUD was up by 10 pips (+0.05%) to 1.9249, GBP/NZD was up by 31 pips (+0.16%) to 2.0115
CHF – The Swissy weakened intensely against most of its forex rivals after the SNB Head Honcho gave his piece about the SNB being able to cut further if needed.
AUD/CHF was up by 66 pips (+0.94%) to 0.7106, NZD/CHF was up by 55 pips (+0.81%) to 0.6799, GBP/CHF was up by 129 pips (+0.95%) to 1.3677
EUR – The euro was also on the back foot against most of its forex rivals, ending roughly flat against the Swissy. There were no apparent catalysts for the weakness, however, but it’s possible that Brexit jitters are also affecting the euro. After all, a Brexit would also hurt the E.U. as well.
EUR/USD was down by 107 pips (-0.96%) to 1.1177, EUR/JPY was down by 34 pips (-0.29%) to 116.70, EUR/GBP was down by 74 pips (-0.93%) to 0.7906
USD – The Greenback was the strongest currency during the morning London session, easily beating out everything else. It’s not clear whether the Greenback’s strength was due to profit-taking after the earlier drop due to the U.S. Fed’s rather dovish FOMC statement, or genuine demand as the safe-haven of choice for most forex traders during the morning London session.
USD/JPY was up by 69 pips (+0.67%) to 104.40, USD/CHF was up by 95 pips (+1.01%) to 0.9676, USD/CAD was up by 53 pips (+0.41%) to 1.3018
- 12:30 pm GMT: U.S. current account (-$125.0B expected, -$125.3B previous)
- 12:30 pm GMT: Headline (0.3% expected, 0.4% previous) and core (0.2% expected, same as previous) U.S. CPI readings
- 12:30 pm GMT: Philadelphia Fed manufacturing survey (1.0 expected, -1.8 previous)
- 12:30 pm GMT: U.S. initial jobless claims (270K expected, 264K previous)
- 12:30 pm GMT: Canadian foreign security purchases ($14.70B expected, $17.17B previous)
- 2:00 pm GMT: U.S. NAHB builders survey (59 expected, 58 previous)
- 8:00 pm GMT: BOE Guv’nah Mark Carney will give a speech
- 10:30 pm GMT: New Zealand’s BNZ PMI (56.5 previous)
Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.
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