With the beginning of the week marking the summer solstice, the point when the sun spends the most time in the sky, it was global markets that had to endure the longest of days, dropping to 4 week lows on Monday.
It was last week's surprise hawkish shift by the U.S. Federal Reserve that seemed to do the damage, pushing the US dollar up to a 10 week high against a basket of developed currencies and dragging down commodity markets in the process. However gold saw its appeal regain some shine, rebounding 1.1% to $1,782.90 an ounce, the sun setting on a six-day losing streak for the yellow metal.
The coupon on the 10 year US Treasury also fell to its lowest since late February, hitting 1.354%, whilst the yield curve lay at its flattest since late January as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.
Adding to the belief that inflation is well on its way was US housing sales data, also released on Monday. Detailing the number of residential buildings that were sold during the previous month, the figures showed 5.8m transactions were processed, compared to the 5.71 forecast. It is worth noting, that these figures are annualised meaning that the number of homes sold in May is less than 1/12th of 5.8m overall. Acting as a leading indicator of economic health, home sales have a far reaching ripple effect across the wider economy, with renovations often carried out by the new owners, a mortgage sold by the financing bank and the commission taken from the estate agent, to name but a few industries involved.
By Thursday, the Bank of England was the sol focus for investors as the central bank embarked on telegraphing its latest thoughts on the domestic economy. Taking the view that the recent spike in inflation could only be transitory and with an end to the furlough scheme on the horizon, the bank seemed to be erring on the side of caution. With only outgoing chief economist, Andy Haldane, seeing the need for tapering of the bank’s asset buying programme, the Monetary Policy Committee voted 8-1 to maintain the status quo.
Across the pond, the end of the week saw more upbeat news. Coming in the form of upbeat weekly jobless claims. Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 411,000 for the week, acting as a sign of continued improvement in the labour market and possibly a new dawn, as the US economy continues to recover from the COVID 19 pandemic.
The coming week will not only see a plethora of important economic data released but also the transition of June to July and the start of the notorious “dog days” a period renowned for when the hot sultry weather of summer usually starts. Typically for British weather, a glance at the weather forecast shows that this period should be greeted with thunderstorms and heavy rain, however it is global markets that should really be heating up this coming week, spurred on by seemingly red hot inflation expectations.
The beginning of the week should give us the first clues as to whether the torrent or strong economic data can continue, with a release of US consumer confidence figures. The figures are so well respected due to the sheer breadth of the survey, with about 3,000 households asked to rate the relative level of current and future economic conditions including labour availability and job security, savings levels and their overall financial situation. Financial confidence is a leading indicator of consumer spending, which makes itself is inextricably linked to demand and overall inflation.
The middle of the week should provide economists with paws for thought, as the Office for National Statistics releases its quarterly GDP numbers for the UK economy. Acting as the broadest measurement for economic activity over a period, GDP readings take into account the total inflation-adjusted value of all goods and services produced by the economy and should provide heightened volatility surrounding sterling on its release.
The tail of the week brings with it the first Friday of the month and as always, US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, providing plenty for economist’s to get their teeth stuck into. The employment data itself will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend. With infection rates still falling over the past month or so across the pond, it will be interesting to see what kind of effect this has had on hiring rates in the world’s largest economy.