This week’s docket is filled to the brim with top-tier U.K. releases, but the House of Commons vote might steal the show. Here’s what to expect.
U.K. manufacturing production (June 11, 8:30 am GMT)
Pound traders could hit the ground running with the U.K. manufacturing production numbers up for release this Monday. Analysts are expecting to see a 0.3% rebound from the earlier decline.
The goods trade balance is also up for release then, and this report is typically considered a leading indicator for trade activity. A smaller deficit of 11.5 billion GBP is eyed compared to the earlier 12.3 billion GBP shortfall, possibly due to a pickup in export activity.
House of Commons debate and vote (June 12-13)
The highly-anticipated House of Commons vote on the EU withdrawal bill could hog the spotlight this week, especially after last week’s beef between Brexit Minister Davis and Prime Minister May.
As detailed in last week’s recap below, lawmakers are still at odds when it comes to the customs backstop, which is basically a contingent plan if the EU and the U.K. don’t strike a deal.
There were 15 amendments added by the Upper House of Lords, and debates might get heated before the actual voting commences. Many expect to see a showdown while others think that Conservatives aren’t in the mood for more drama ahead of the EU Summit later in the month.
U.K. jobs report (June 12, 8:30 am GMT)
The release of the U.K. employment figures might be overshadowed by the House of Commons vote, but it’s still important to take note of how the numbers turn out to gauge future spending and inflation figures.
For the month of May, the U.K. claimant count is expected to have increased by 11.3K, slower than the earlier 31.2K rise in joblessness. The unemployment rate likely held steady at 4.2%.
As for wage growth, the average earnings index or three-month rolling average of wage changes until May might have ticked down from 2.6% to 2.5%. Higher than expected results could revive expectations of stronger inflation and BOE tightening prospects.
U.K. inflation reports (June 13, 8:30 am GMT)
On the subject of inflation, the U.K. will also be printing its CPI and other gauges of price levels for May.
The headline CPI is expected to have held steady at 2.4% while the core version of the report might also sit tight at 2.1%. Producer input prices, however, could post a stronger 1.8% gain versus the earlier 0.4% uptick to hint at stronger consumer price pressures down the line.
U.K. retail sales (June 14, 8:30 am GMT)
Last but certainly not least is the U.K. retail sales report which gives an idea how Brits are adjusting to economic conditions. You see, rising price levels have previously dampened their spending power, although there have been signs of resilience more recently.
Analysts are expecting to see a 0.5% gain in retail sales, slower than the earlier 1.6% increase. Might we see a pickup from sales of Royal Wedding memorabilia, though?
Last Week’s Price Review
The pound is mixed for the week (as of 2 pm GMT). And while pound pairs did have somewhat mixed price action that even diverged at times, there were also periods of uniform price action, so the pound wasn’t just being pushed around by its peers.
Having noted that, the pound started the week on a weak note. Although the weakness didn’t become clearly broad-based until Monday’s U.S. session.
There were no major negative catalysts at the time, but some market analysts said that Brexit-related uncertainty dragged the pound lower, although they didn’t really cite a specific catalyst.
Selling pressure on the pound appears to have ramped up when news hit the wires that the House of Commons will vote on the E.U. Withdrawal Bill on June 12. However, that news can’t really be considered market-moving since it’s pretty much a given that the House of Commons will do that.
Anyhow, the pound eventually found a bottom and jumped higher when the U.K.’s latest services PMI reading surprised to the upside (54.0 vs. 53.0 expected, 52.8 previous).
The pound then steadily clawed its way higher against most of its peers before becoming more mixed and trading roughly sideways starting on Wednesday.
There was a bout of uniform price action on Thursday, though, since the pound got kicked broadly lower during Thursday’s London session. And as noted in Thursday’s London session recap, that was apparently due to Brexit-related headlines at the time since they focused on the disagreements between Brexit Secretary David Davis and British PM Theresa May with regard to a “backstop” customs arrangement between the U.K. and E.U.
You see, the U.K. intends to leave the E.U.’s customs union. However, a trade deal hasn’t been discussed yet and it’s not even guaranteed that a post-Brexit trade deal between the U.K. and the E.U. will be hammered out.
If the E.U. and U.K. can’t reach a deal, then that would effectively mean a hard border between Ireland and Northern Ireland. And neither side doesn’t want that.
A sort of contingency plan is therefore needed. And that’s where the “backstop” comes in since it would ensure that the U.K. will be part of the customs union after the transition period ends.
However, Theresa May didn’t want a time limit to the backstop while David Davis did, hence the conflict between the two.
At any rate, the pound’s bleeding finally stopped when Theresa May’s government finally released a policy paper that contained the government’s proposal on the “backstop” customs arrangement.
Crucially, the proposal showed that Theresa May relented since the customs arrangement would be “time-limited”. In addition, the customs arrangement will only be in place “by the end of December 2021 at the latest.”
The proposal didn’t really entice more GBP bulls to charge in, however, since the pound resumed its mixed and roughly sideways price action after that.