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22 Jul 2016 09:02 EUR/USD - 1.1029... Reuters reported Italian retail sales rose a seasonally-adjusted 0.3 percent month-on-month in May after a 0.1 percent increase in April, national statistics bureau ISTAT reported on Friday. 
 
However, sales were down 1.3 percent in unadjusted year-on-year terms, the second consecutive decline and the steepest drop since November 2014, ISTAT said.  
 
The data are expressed in value terms and are not adjusted for consumer prices, which fell 0.3 percent in May from the year earlier, based on Italy's EU-harmonised index (HICP). 
 
In the three months to May, sales were down 0.3 percent from the December to February period, while in the first five months of the year they were up 0.3 percent from the same period of 2015.  
 
22 Jul 2016 08:59 GBP/USD - 1.3182... Although the British pound rebounded after retreating fm 1.3254 to 1.3226 in Asia n then briefly rose to 1.3291 in European morning, surveys fm Markit showed business activity in UK shriking at a fast pace after the shock Briexit vote last month (see our prev. MMNs) knocked price sharply lower to 1.3165 b4 stabilising. 
 
At the moment, offers are noted at 1.3190-00 n more at 1.3210-30 with stops abv 1.3250, whilst bids are reported at 1.3160-50 n then 1.3140-30 with stops below there. 
 
22 Jul 2016 08:41 Continues from previous update... 
 
The new orders index for services firms fell by the largest amount on record, and there was the first decline, albeit slight, in services employment since December 2012. 
 
Williamson said there was some improvement in the data after the appointment of Theresa May as prime minister last week, but whether the PMIs will improve next month remains to be seen. 
 
"With policymakers waiting to see hard data on the state of the economy before considering more stimulus, the slump in the PMI will provide a powerful argument for swift action." Williamson said. 
 
A Reuters poll earlier this week predicted Britain's economy would slide into recession in the coming year, forcing the BoE to cut interest rates next month and start purchasing bonds again. 
 
22 Jul 2016 08:39 Continues from previous update... 
 
There were few bright spots. Sterling's plunge to its lowest level against the dollar since the mid 1980s after the referendum helped manufacturing exports expand at the fastest pace in almost two years.  
 
But the pound's fall also pushed up the costs faced by British manufacturers for energy and raw material at the fastest pace in five years. 
 
BoE Governor Mark Carney has warned that the central bank would probably face a trade-off between slower economic growth and higher inflation if Britain voted to leave the EU.  
 
Business expectations for the next year among services companies cratered to the lowest level since January 2009. 
 
22 Jul 2016 08:37 Continues from previous update... 
 
Markit said that if the PMIs stayed at these levels, they would be consistent with the economy shrinking at a quarterly pace of 0.4 percent, a rate of decline not seen since the 2008-09 recession. 
 
"July saw a dramatic deterioration in the economy," said Chris Williamson, Markit's chief economist. 
 
"The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to Brexit." 
 
The manufacturing PMI fell to 49.1 from 52.1 in June, the lowest since February 2013.  
 
The composite index, which combines services and manufacturing, slumped to 47.7 from 52.4, the weakest reading since April 2009. 
 
22 Jul 2016 08:36 Continues from previous update... 
 
The report of a sharp drop in business activity across a broad swathe of Britain's economy may alarm the Bank of England, which is trying to decide how aggressively it needs to act to cushion the shock of the vote to leave the EU.  
 
The BoE's own research, published on Wednesday, along with some other surveys, had pointed to a big rise in uncertainty but a relatively limited initial drop in activity.  
 
Markit's figures are one-off 'flash' versions of its monthly surveys. They are based on 85 percent of the normal number of responses, collected from July 12 to 21 to capture sentiment after the Brexit vote. Markit will update the figures early next month. 
 
22 Jul 2016 08:34 GBP/USD - 1.3193... Reuters reported Britain's economy appears to be shrinking at the fastest rate since the financial crisis in the wake of last month's Brexit vote, according to a business activity index that saw the biggest drop in its 20 year history. 
 
An early edition of Markit's purchasing managers' indices showed the services sector - one of the few drivers of British economic growth recently - has been hit especially hard by the vote to leave the European Union, with orders plunging and confidence crumbling. 
 
The PMI for the services sector fell to 47.4 in July from 52.3 in June, marking the steepest drop since records began in 1996 and the lowest reading since March 2009, around the nadir of the global economic recession. Economists polled by Reuters had expected a much smaller fall to 49.2. 
 
22 Jul 2016 08:12 Continues from previous update... 
 
"The boost from an expansionary fiscal policy suggests any downgrade to the BOJ's inflation forecast won't be too big," said one of the sources. 
 
"The positive impact (of the government's stimulus package) will be biggest in fiscal 2017," another source said on condition of anonymity due to the sensitivity of the matter. 
 
The BOJ now expects core consumer inflation to hit 1.7 percent in the next fiscal year beginning in April 2017, far above private forecasts of 0.8 percent. 
 
In a quarterly review of its projections to be conduced at a policy meeting on July 29, the nine-member board is likely to cut the forecast to around 1.5 percent, the sources said. 
 
It is seen roughly maintaining the 1.9 percent inflation forecast for fiscal 2018, which would back up its view that Japan is on track to achieve its price target, they said. 
 
22 Jul 2016 08:11 USD/JPY - 106.12.. Reuters just reported, the Bank of Japan will likely cut next fiscal year's inflation forecast only slightly and largely maintain its upbeat projection for fiscal 2018 at a policy review next week, sources said, an outlook which could allow it to argue that there is no need for imminent monetary easing. 
 
While falling import costs from a strong yen and weak consumption will weigh on inflation, such risks will be tempered by a boost to growth from an anticipated fiscal stimulus package and a delay in next year's sales tax hike, sources familiar with the bank's thinking said. 
 
Prime Minister Shinzo Abe has said the government will announce a large spending package by the end of this month. 
 
"The boost from an expansionary fiscal policy suggests any downgrade to the BOJ's inflation forecast won't be too big," said one of the sources. 
 
22 Jul 2016 08:10 Continues from previous update... 
 
The impact of Brexit on inflation will be small, however, the survey showed. 
 
The ECB aims for inflation of close to 2 percent but has undershot the target for years, a risk to its credibility, particularly since it is on track to miss at least through 2018, according to its own staff projections. 
 
The survey of professional forecasters sees inflation at 1.2 percent next year, 1.5 percent in 2018 and 1.8 percent in five years. 
 
22 Jul 2016 08:09 Continues from previous update... 
 
The ECB kept interest rates unchanged on Thursday but left the door open to further easing, arguing that it needed more data on the slowdown and the economic impact of the referendum.  
 
Those forecasters that already included Brexit in their projection predicted that the fallout would reduce 2017 growth by 0.26 percentage point and inflation by 0.07 percentage point, the ECB said.  
 
The growth impact will be felt through lower net exports to Britain, further limited by the depreciation of the pound, uncertainty about the nature of Britain's future relationship with the EU, and increased volatility on financial markets, the ECB said. 
 
22 Jul 2016 08:08 EUR/USD - 1.1030... Reuters also reported euro zone growth may be lower than previously expected, primarily due to the effects of Britain's vote to leave the European Union, the European Central Bank's Survey of Professional Forecasters showed on Friday. 
 
Growth is now seen at 1.4 percent next year, below an earlier projection of 1.6 percent while the 2018 estimate was cut to 1.6 percent from 1.7 percent, the quarterly survey of 51 forecasters showed. For 2016, the GDP growth projection was unchanged at 1.5 percent.  
 
"Based on the qualitative comments provided by the respondents, these revisions largely reflect an expected negative impact on the euro area from the UK referendum result," the ECB, the central bank of the euro zone, said. 
 
22 Jul 2016 08:07 Continues from previous update... 
 
Giving a mixed outlook for next month, services firms increased headcount at the fastest rate since early 2008 but new order growth for manufactured goods slowed dramatically.  
 
Still, if maintained at this level, the composite PMI points to third-quarter economic growth of 0.3 percent, Markit said, in-line with a Reuters poll published on Wednesday but a sharp slowdown from the 0.6 percent growth seen at the start of the year. 
 
22 Jul 2016 08:06 Continues from previous update... 
 
A corresponding survey for Britain, due at 0830 GMT and one of the first major indicators to give an idea of how Britain is faring after the referendum, is expected to show manufacturing growth stagnated while services activity contracted. 
 
A PMI covering the euro zone's dominant service industry beat expectations for a fall to 52.3 from 52.8 by only nudging down to 52.7, still an 18 month low. 
 
The factory PMI suffered a sharper fall, coming in at 51.9 versus June's 52.8, close to expectations for 52.0. An index measuring output, which feeds into the composite PMI, fell to 53.6 from 53.9. 
 
22 Jul 2016 08:05 Continues from previous update... 
 
"The decline in prices was only marginal, deflationary pressures are easing. This won't overly worry the ECB," Williamson said. 
 
"Given what else has happened in the past month, to get a PMI like this is something that Draghi and the Governing Council will be reasonably comfortable with."  
 
A truck attack on holiday crowds in France last week killed 84 people and hurt hundreds, the third deadly assault in the country in 18 months for which Islamist militants have claimed responsibility.  
 
Further muddying the waters, Britons voted on June 23 to leave the European Union, a surprise outcome that sent shockwaves through global financial markets and means the British economy will probably slide back into recession in the coming year. 
 


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