UK GDP Revised Higher
As expected, UK GDP was revised slightly higher but still posted a q/q contraction of -0.5% (previously stated as -0.7% ). UBS economics expect a recovery in Q3 (+0.5%) because of the Olympics, but, taking the two quarters together, it is clear that the economy is flat. The impact of net trade (1-percentage point subtraction) was the biggest since 1998, though UBS economics notes that the reality is that export volume growth is only marginally lower; the bigger news is on import volume, which has actually expanded by 2.7%. In the Asian session, RBA Governor Stevens delivered his semi-annual testimony before a parliamentary committee but offered no change in his views. Peppered with questions on the topic, he still appears extremely reluctant to engage in FX intervention to weaken the Australian dollar. Although he acknowledged that AUD is currently trading a bit above where he thought it should be, it is not dramatically overvalued in his view. He also pointed to the risks associated with possible intervention and stressed that although the SNB is indeed intervening to prevent the Swiss franc appreciating, Switzerland is in a unique situation which is very different from Australia’s. Stevens also repeated his view that the mining investment boom is likely to continue and peak in 1-2 years, which helps put in context headlines on mine expansion delays which briefly hurt AUDUSD earlier this week. St Louis Fed President Bullard (non-voter) noted that the latest FOMC minutes “are a bit stale” and it would be “unusual for the Fed to take action on this data constellation”. Merkel met French President Hollande on Thursday with a “full agenda” to discuss the Eurozone crisis. She noted that France and Germany will “encourage Greece to pursue the path of reform” but reiterated that any decision could be taken only after reviewing the Troika report. Greece Prime Minister Samaras warned again about the consequences of a Greek euro exit ahead of his visit to Berlin today, describing an exit scenario as “a geopolitical nightmare”. Data in the US were modestly stronger again with new home sales in July growing by 3.6% m/m and 25.3% y/y. Initial jobless claims increased by 4k, however, but the four-week average remained unchanged at 368k. The latest FOMC minutes and more positive Eurozone news have prompted us to lower our short-term forecasts for the US dollar while keeping our longer-term bullish view unchanged.
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