The value of the pound took a step downwards
Global equities paused for breath last week following strong rises the week before. The FTSE 100 remains up over 4% since the result of the EU referendum was known. Importantly, concerns over the health of the US economy were reduced somewhat on Friday, with June’s non-farm payrolls coming in significantly above analysts’ expectations at 287,000 against 175,000 expected. Investors were worried over the same data last month which were below expectations, with some fearing that it was signalling the beginnings of a recession. The US unemployment rate came in at 4.9% for June, up from 4.7% in May. While this is counterintuitive given the jobs created, the figure is based on different data and may be signalling more people having the confidence to return to the workforce, expanding the pool of labour. This should be seen as a longer term positive for the US economy.
UK gilt yields continued to fall over the last week, once again reaching new lows. Investors are pricing in potential rate cuts and further quantitative easing by the Bank of England. Several bank officials remain cautious of cutting too far as well as the prospect of negative interest rates. However, this would have been the stance of all central bank officials now implementing the policy (BOJ, ECB) and therefore such a policy cannot be ruled out at this stage. The Bank of England monetary policy committee meets on Thursday, the outcome of which should give further guidance.
There was another step downwards in the value of the pound on Monday last week, falling to a low of $1.28. Trading is likely to remain volatile as more data on the impact on Brexit comes to light. The impact of a weaker sterling on the UK’s current account deficit is debated, and is likely to be determined by the impact Brexit will have on economic growth and confidence both in the UK and internationally.
|UK 10 Year Gilt Yield||0.869||0.73||-0.139||-16.00%|
The Bank of England interest rate decision is on Thursday. Q2 Chinese GDP data is released on Friday.