Morning Report: 14 July 2017

14th July 2017 By: Ranko Berich

GBP Sterling had another eventful day yesterday, rallying against both EUR and USD after senior Bank of England Monetary Policy Committee member Ian McCafferty said that he believed the Bank should exit its quantitative easing programme earlier than current consensus would seem to indicate. McCafferty voted to raise interest rates in June and is known for his hawkish leanings on interest rates, and could well continue to find little traction for his views among the MPC as a whole. Elsewhere, Bank of England credit conditions data showed that lenders were reducing credit availability among a surge in defaults – hardly frothy financial conditions that require immediate monetary tightening. Finally, the Government acknowledged for the first time yesterday that a financial settlement – or divorce payment – will be necessary as part of Brexit negotiations, suggesting that Boris Johnson’s suggestion that EU leaders be told to “go whistle” has not yet made it into official policy.

EUR The euro weakened yesterday, even against the US dollar which was coming under broad pressure elsewhere. German and French Consumer Price Index revisions were released for June, although both monthly changes remained the same as the previous release, at 0.2% and 0.0% month on month change respectively. Today is National Day – or Bastille Day – in France, and banks will close, but at 10:00 BST Italian and Eurozone Trade Balance data will be released.

USD When viewed on a broad or weighted basis USD struggled in many places yesterday including against sterling, but did manage to regain some ground against the euro. Producer price index data showed that headline producer prices had expanded by 0.1%, driven by higher food prices, although once volatile items such as food were excluded the index was up only 2% compared to June 2016. Weekly Unemployment Claims were low, but nonetheless slightly higher than expected. Janet Yellen testified again, this time to lawmakers from the Senate, and mostly stuck to the message she has honed over recent months, and at testimony to the House earlier this week. Interest rate hikes would be gradual, and conditional on incoming data, particularly around inflation and wages. Given the central importance of data to the Fed’s approach to further tightening, today’s US releases will certainly be worth watching, with Retail Sales and the Consumer Price Index out at 13:30 BST, followed by Industrial Production at 14:15.

CAD After a week of momentous action, the loonie took something of a breather yesterday, and USDCAD traded in a narrow, flat band throughout the day. The New House Price Index rose 0.7% in May, following even stronger growth in April, but no data will be released today.

UK news

  • FT: Britain concedes it will have to pay EU exit bill First explicit acknowledgment of liabilities likely to avert Brexit talks clash. Britain has for the first time explicitly acknowledged it has financial obligations to the EU after Brexit, a move that is likely to avert a full-scale clash over the exit bill in talks next week. In a written statement to parliament touching on a “financial settlement”, the government recognised on Thursday “that the UK has obligations to the EU?.?.?.?that will survive the UK’s withdrawal — and that these need to be resolved”. The text, released by Joyce Anelay, a Brexit minister, was immediately seen by Brussels as a potentially important development. EU diplomats say the wording “goes further” than Theresa May’s previous reference to Britain being willing to reach a “fair settlement” of unspecified obligations.
  • Reuters: British tourism boosted by 21 percent jump in foreign holidaymakers. The number of foreign holidaymakers coming to Britain in the first three months of this year jumped by 21 percent, adding to other signs that the fall in the value of the pound since last year’s Brexit vote is helping the country’s tourism industry. The overall number of foreign visitors to Britain rose by 9.9 percent compared with a year earlier, including a nearly 2 percent fall in business travellers, the Office for National Statistics said on Thursday. Trips abroad by British holidaymakers rose by 5.6 percent, contributing to an overall 8.1 percent increase in UK residents going out of the country in the January-March period.