China moves to stabilise currency

OVERNIGHT

Asian equity markets are mixed this morning. China has taken steps to stabilise its currency. Chinese Premier Li commented that China is on course to meet its economic growth target for this year and that Q2 growth would exceed that of Q1. However, he also said that further stimulus measures may be necessary. US Treasury Secretary Yellen will visit Beijing in July for ‘high-level’ economic talks. In the UK, the BRC shop price index showed a fall in the annual rate of inflation to 8.4% in June from 9.0% in May.  

THE DAY AHEAD

US durable goods orders are expected to have fallen sharply in May. That decline is likely to have been mostly due to the volatile transportation sector. In contrast, orders across other durable producers are projected to be up modestly on the month, although even that measure is below its level of a year ago reflecting the pressures that manufacturing sectors worldwide are under right now. On a more positive note, non-defence capital goods orders and shipments have picked up sharply from the start of the year. That may reflect the considerable incentives that the Biden administration has offered to encourage green investment.

US consumer confidence measures remain well below their pre-Covid levels. That probably reflects ongoing concerns about inflation and higher interest rates. The June reading for the University of Michigan’s consumer sentiment indicator showed a larger-than-expected bounce from the low for the year recorded in May but was still below its level at the start of the year. Today’s Conference Board’s consumer confidence reading for June is also expected to show a rise, although it should be note that the two measures do not always move together.

With the major central bank updates of the last two weeks out of the way, markets are now looking for further guidance from policymakers on what is likely to happen next to interest rates. The European Central Bank is hosting its annual forum over the next couple of days and speakers will include policymakers from both the Bank of England and the US Federal Reserve. Possibly the highlight will be tomorrow’s panel of central bank leaders including the BoE’s Bailey. However, ahead of that today’s opening comments from ECB President Lagarde may offer some important insights into what will happen next with euro rates. Also BoE policymakers Tenreyro and Dhingra – both of whom voted against last week’s UK rate hike – are due to speak today. Tenreyro will deliver a paper arguing that recent inflation overshoots have been primarily driven by supply side shocks that are now set to ease. Ms Dhingra is due to speak at a Women in Economics network.

MARKETS

UK gilt yields and US Treasury bond yields both fell modestly yesterday but the latter have rebounded overnight. Market uncertainty over what will happen next to interest rates remains high. In currency markets sterling is slightly higher overnight versus both the euro and the US dollar.