Good morning,
This week, the feline-masked meme stock disruptor Roaring Kitty used up another of his nine lives, dodging a lawsuit accusing him of manipulating GameStop stock. Known in real life as Keith Gill, his antics inspired the film Dumb Money and caused chaos on Wall Street in 2021. Now, he’s back, buying a 6.6% stake in pet retailer Chewy. Gill’s cryptic social media posts sent Chewy’s stock on a rollercoaster ride, showing he’s still got the knack for stirring up the market. Wall Street, take note—Roaring Kitty isn’t done yet.
Last Week
The pound rallied last week, buoyed by Labour’s historic landslide victory and a renewed optimism for the UK. Early in the week, PM Starmer’s commitment to resetting EU relations lifted spirits, and the mood was further brightened by England’s win in the Euro semi-final. Thursday’s stronger-than-expected GDP growth of 0.4% sent sterling to yearly highs, solidifying its status as 2024’s best-performing currency. Adding to the positivity, Chancellor Rachel Reeves unveiled ambitious planning reforms aimed at boosting growth. These factors, coupled with newfound political stability, suggest the pound will continue to bask in optimism.
The US dollar had a tough week as Biden faced increasing scrutiny and inflation cooled. President Biden’s cognitive missteps continued, most notably introducing Ukraine’s President Zelensky as “President Putin.” This slip-up amplified calls from key Democrats, including George Clooney, for Biden to step down. Meanwhile, inflation hit its lowest level in over three years, increasing expectations for a Fed rate cut in September. The Chicago Mercantile Exchange FedWatch tool saw a 20% jump in favour of a September cut following this news. Despite the political turmoil and easing inflation, the sell-off may be overdone, and the dollar can, in our opinion, recover some of its losses over the coming weeks.
The euro slipped last week as the French elections introduced more uncertainty. Although the far right increased their seat count by nearly 100, they fell short of a majority. The far left, gaining the most seats, also failed to secure the 289 needed for a majority, leading to a hung parliament. This uncertainty was reflected in the rising gap between French and German 10-year borrowing costs, a key risk indicator. Initially, the euro remained flat, but as the week progressed, it declined. France now faces challenging coalition talks, leaving its political and fiscal future uncertain, which will weigh on the single currency.
This Week
Pound bulls face a crucial CPI test next week. The British pound has enjoyed a robust rally in July, spurred by a softer US dollar and Labour’s landslide victory, ending years of Tory turmoil. Challenges remain however and despite headline inflation hitting the Bank of England’s 2% target in June, services inflation stubbornly sits at 5.7%. With the British economy showing renewed growth, there’s no immediate pressure to cut rates. Markets are evenly split on an August rate cut, and upcoming inflation, employment, and retail sales data could be decisive. Any moderation in core CPI and wage growth may push policymakers towards a cut, potentially pressuring sterling. Yet, the pound’s resilience may persist amid an improving UK economic outlook and troubles facing the euro and yen.
The European Central Bank (ECB) concludes its two-day policy meeting on Thursday, with no changes in interest rates expected following last month’s 25 basis point cut. The June decision sparked controversy, as the Governing Council committed to a cut before all data was in, facing an uptick in both inflation and wage growth. The ECB defended its move, citing the risk of undershooting its inflation target. Since then, inflation has slightly receded, and there are signs of cooling pay pressures, despite elevated wage growth. While a majority supports at least one more cut in 2024, opinions diverge on a third reduction. Markets await ECB President Lagarde’s guidance, with the euro likely to gain if she holds off on committing to a September cut. Also in focus are Germany’s ZEW economic sentiment survey on Tuesday and the final Eurozone CPI estimates for June on Wednesday.
The Week Ahead
Monday July 15th
13:30 US Manufacturing Index
17:00 US Fed Chair Powell Speaks
Tuesday July 16th
13:30 Canadian CPI & US Retail Sales
23:45 New Zealand CPI
Wednesday 17th July
07:00 UK CPI
Thursday 18th July
02:30 Australian Unemployment Rate
07:00 Claimant Count Change
13:15 Eurozone Monetary Policy Statement
13:30 US Unemployment Claims
13:45 ECB Press Conference
Friday 19th July
07:00 UK Retail Sales
13:30 Canadian Retail Sales
Have a great week,
Team Garton