July 19, 2022

Daily Report 19/07/2022

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In comments on Monday, Bank of England external member Saunders warned that price pressures could be harder to stop than the bank’s central forecasts due to a declining potential growth rate. He added that he thought the tightening cycle still had some way to go and it was plausible that rates could increase to at least 2.0%. He added that the cost of tightening too slowly was probably higher than the risk of raising rates too much and it was not correct that a neutral rate is 1%. The rhetoric remained broadly hawkish, although the overall impact was relatively limited given that Saunders has been consistently hawkish and will also leave the Monetary Policy Committee after the August meeting. Sterling did, however, maintain a firm tone with firmer risk appetite helping to underpin sentiment while there was also an important element of short covering. The Conservative Party leadership election had little impact, but tax policies will be in focus and comments from Bank of England Governor Bailey will be watched closely during the day. The UK employment data was stronger than expected, but there was a slowdown in headline average earnings growth which may ease Bank of England concerns to some extent.

Key Data 

7.00 Claimant Count Change (Jun) Act. -20K Exp. -30.1K Prev. -34.7K

7.00 ILO Unemployment Rate (3M) (May) Act. 3.8% Exp. 3.8% Prev. 3.8%

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There was further uncertainty over gas supplies to the EU with the planned maintenance period for the Nord-Stream pipeline due to come to an end later this week. Gas prices edged lower on the day and a resumption of supplies would help underpin Euro-Zone economic confidence to some extent. There were some reservations over selling the Euro ahead of Thursday’s ECB policy meeting with uncertainty over the interest rate decision and caution surrounding the new plans to curb the threat of fragmentation in bond markets.

Key Data 

9.00 ECB Bank Lending Survey

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The US currency overall maintained a weaker tone with further expectations that the US economy would lose traction amid a tightening of financial conditions. The NAHB housing index dipped sharply to 55 for July from 67 previously which was well below consensus forecasts of 66 and the lowest reading since May 2020. Federal Reserve officials have commented on the importance of the housing sector for calibrating their interest rate decisions and degree of monetary tightening required. The weaker than expected NAHB data was another important fact dampening expectations of a more aggressive Fed rate hike at this month’s policy meeting.

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