Global Themes


Pound under political pressure

Resignation of Euroskeptic ministers leaves PM May exposed

The UK football team might be exceeding even their own fans’ expectations at the World Cup, but at home neither the economy or its politicians are excelling. News emerged yesterday that Foreign Secretary Boris Johnson and “Brexit Minister” David Davis have resigned, leaving residing Prime Minister Theresa May under increasing pressure, and opening up the possibility of a leadership challenge by Johnson himself. May’s position has always seemed somewhat tenuous since she lost the Tory majority in the 2017 elections, and as a Remain voter overseeing Brexit negotiations there has always been tension between her and the Johnson led pro-Brexit faction of the Conservatives. Adding to English woe yesterday was a meek 0.2% growth print for the three months to May, part of a new reporting series for UK growth.

NZD/GBP is now 1% higher than this time last week, and should factions more aligned to a hard Brexit succeed with a leadership challenge, then this cross rate could see a rapid advance in coming weeks.

Chinese inflation accelerates in June
CPI rises by an annualised 1.9%
Chinese inflation saw further evidence of a bounce back from lows set earlier this year, reporting a 1.9% annualised growth rate for June yesterday. Producer prices also hit fresh 6 month highs at 4.7%. Slowing domestic demand and the recent imposition of tariffs by the US are clearly yet to make a mark, but are a concern for the PBOC who set their inflation target at 3% for 2018, and raises the prospect of further central bank stimulus later this year.

NZD/USD was little changed on the news, while NZD/CNH nudged higher by 0.2%, as the Yuan continues its weakening trend.

Bank of Canada expected to hike tonight
Benchmark rate set to rise to 1.5%
Headlining this evening will be a Bank of Canada rate decision, with economists widely tipping a quarter percent rise in the rate to 1.5%. Canadian Dollar buyers need not panic though, as the BoC could adopt a wait and see approach following the hike, given pending Trump tariffs on Canadian automobiles, and should they frank the view the next rate rise might not be until mid 2019 then the CAD may actually weaken.

Australian consumer confidence and US producer prices also have potential for marginal market moves today.

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