Morning Report: 14 June 2017

14th June 2017 By: Ranko Berich

GBP Sterling was up on the day yesterday after Consumer Price Index inflation smashed expectations, to hit 2.9% year on year. Pressure in producer prices eased off somewhat, but this is far from any guarantee that the pass through to consumer prices of a weaker sterling and surging input costs is over. Yesterday’s release took year on year inflation to near the peak of the Bank of England’s central forecast band, meaning if inflation continues to accelerate, the BoE will once again be forced to rethink its assessment of the economy’s price and wage dynamics. Today at 09:30 BST more top tier data will be released, with Unemployment and Average Earnings figures out alongside other labour market statistics.

EUR The euro had another relatively tranquil day yesterday, drifting slightly lower against sterling while few releases of note hit the news wires. The ZEW Economic Expectations survey was released, with the Germany Subindex showing slightly lower economic optimism among the surveyed investors and analysts, while the Europe wide index showed a marked increase. The European Union’s chief Brexit negotiator, Michel Barnier, gave interviews with several newspapers including the Financial Times, criticising the lack of any progress in negotiations and calling on the UK Government to prepare a negotiating position so talks could start. Quarterly eurozone Unemployment data will be released at 10:00 this morning, accompanied by Industrial Production.

USD USD was under broad sell pressure yesterday, and continued to sell off overnight, ahead of today’s crucial Federal Open Market Committee events. US Attorney General Jess Sessions denied he was involved in alleged collusion between the Russian government and the Trump campaign, referring to the allegation as an “appalling and detestable lie”. Sessions was an early supporter of Trump, who allegedly asked then FBI Director James Comey for “loyalty” before sacking him on refusal, and was previously rejected for a judgeship on grounds of racism. Today at 13:30 BST, monthly Retail Sales data will be released alongside the Consumer Price Index, marking a double whammy of top tier data. At 19:00 BST, the latest Federal Reserve rate decision will be announced, followed a 19:30 by a Press Conference. The Fed is overwhelmingly expected to hike rates at today’s meeting, and a failure to do so would see the dollar sell off sharply. The question is how hawkish or dovish the projections of growth, unemployment and inflation that will accompany the releases will prove to be. The Federal Open Market Committee could plausibly raise rates today, but lower the path of hikes in the future, resulting in a net loss for the dollar.

CAD The loonie remained on a rampage yesterday, continuing to strengthen in the wake of explosive comments made by Bank of Canada deputy Governor Carolyn Wilkins earlier in the week. The BoC is unlikely to raise rates at its next meeting on 12th July. But Wilkins’ comments about improving economic conditions possibly prompting a rethink of accommodative policy show that if Canada’s economy continues to improve, the BoC is not as far from responding as might have been assumed prior to her speech.

UK news

  • FT: UK wage squeeze intensifies as earnings growth slows further in April Pressure on British households intensified in April, with the latest data on pay packets showing a slowdown in wage growth as inflation hit a four-year high. Official data from the Office for National Statistics show weekly earnings growth excluding bonuses fell to 1.7 per cent from 2.1 per cent in the three months to April – marking the second consecutive month of negative real wage growth in the UK economy (calculated after inflation). Britain’s more than two-year run of rising living standards came to an end in March as inflation climbed to its highest level since 2013. Living costs have been driven up on the back of higher energy prices and the pound’s depreciation after last summer’s Brexit vote.