Week Ahead – UK post-Brexit data to be closely monitored; dollar to tune into Fed minutes

Michalis Florentiades, XM Investment Research Desk

The British pound will likely experience some movement next week, as one of the first major batches of post-Brexit economic data will be released.  Elsewhere, the US inflation report, some Fed speakers and the Fed meeting minutes and Japanese GDP growth for the second quarter, will all be closely watched by market participants.

The week will get off to a slow start, with the first important indicator coming out of Japan on Monday in the form of GDP for the 2nd quarter.  Japan’s economy is expected to have grown 0.2% during the quarter, which comes out to a 0.7% annualized rate.  Japanese data have been coming out relatively strong lately, despite the rising yen and general pessimism about the country’s economic prospects so it will be interesting what GDP numbers will have to show.  There will be more Japanese data later in the week in the form of Imports and Exports.  A number of European countries such as France, Italy and Spain will be on holiday on Monday because of Assumption Day.

Inflation releases will be the main theme of Tuesday’s trading, as both the UK and the US will publish their consumer prices for July.  Headline inflation in the UK is expected to fall by 0.1% month-on-month while the year-on-year rate is expected to stay constant at 0.5%.  The UK’s inflation dynamics are expected to have been altered by Brexit and the significant drop in the pound, but this will not show in the data just yet.  In the United States, headline inflation should drop to just under 1% in July according to analysts.  Core inflation on the other hand will stay high at 2.3%.  CPI inflation is not as closely watched these days since the Fed prefers the Personal Consumption Expenditure (PCE) price index, making the CPI release secondary when it comes to monetary policy.  US building permits and housing starts will be released at the same time as the CPI, followed by industrial output.  Tuesday will also see the release of the German ZEW economic sentiment index; one of the few Eurozone-related numbers to be released next week.

Wednesday will feature the UK’s employment report for July, which will give some indication of the employment situation during the month following the Brexit vote.  This will show mainly in the claimant unemployment count, expected to rise by 10 thousand compared to the previous rise of just 400 persons.  Unemployment in June is expected to have stayed at 4.9% and wage growth also should pick up a little compared to the previous month.  The UK employment numbers will be supplemented by July’s retail sales released during Thursday.  Retail sales are expected by up slightly (0.1%) during the month.  Retail sales should shed some light on the state of the UK consumer following Brexit, although the weather and possible spending by tourists (with their purchasing power boosted by the lower pound), possibly flattering the underlying domestic demand trend.  The UK economy’s response to Brexit has so far been evaluated using survey data and this will be one of the first ‘hard’ data points that will show actual spending.

US dollar traders will be following speeches by regional Fed Presidents Bullard and Williams next week, as well as the release of the Fed minutes for its July 26-27 meeting.  It has been a roller coaster ride for the US dollar as a very strong labor report has been neutralized by weak productivity and flat retail sales growth.  Therefore, the interpretations of Fed officials might give some guidance although December is a long way away as the first realistically possible day for a rate hike.

Finally, the Canadian dollar, which is in the spotlight because of the volatile oil price, will probably be watched next Friday because of the release of both inflation and retail sales.