Morning Report: 16 June 2017

16th June 2017 By: Ranko Berich

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GBP Sterling strengthened substantially against the euro yesterday, while making smaller gains versus the US dollar. May’s Retail Sales figures strong suggested that consumer spending in the UK is suffering from a substantial slowdown, as headline sales fell 1.2% on the month compared to a bumper April that included Easter. However sterling rallied in the afternoon after meeting minutes from the Bank of England’s Monetary Policy Committee showed that three members had voted for rate hikes at this week’s meeting. Although the dovish majority on the Committee remained intact, the fact that three members saw fit to raise rates immediately suggests the BoE is less committed to its policy of “looking through” the current inflationary shock than might have been previously expected.

EUR The euro sold off slightly yesterday, after some weak French Consumer Price Index data set the tone for a soft day in General. French Consumer Prices changed 0.0% in May, less than even the 0.1% growth initially expected. News emerged that Greece and the federation of the world’s most lenient loan sharks had reached a deal on the next stages of the nation’s bailout. The road now appears to be clear for the next tranche of funding to be disbursed, enabling Greece to meet its upcoming other debt payments. The International Monetary Fund previously objected to participating in the bailout due to concerns about the sustainability of Greece’s debt pile, but these objections appear to have been overcome with a classic Brussels fudge where the Fund won’t actually distribute funds to Greece until it’s eurozone creditors provide more detail on debt relief. Today at 10:00 revised eurozone Consumer Price Index data will be released.

USD USD was surprisingly resilient yesterday, after a week of bruising data releases. Weekly Initial Jobless Claims were lower than expected, while manufacturing surveys from the Philadelphia and New York Federal Reserves both beat expectations significantly. US Industrial Production changed 0.0% in May after a big jump in April, and the NAHB Housing Market Index fell slightly. Today at 13:30 BST monthly Building Permits and Housing Starts data will be released, followed at 15:00 by University of Michigan Consumer Sentiment and Inflation Expectations surveys.

CAD The loonie continued to pare back its gains from earlier in the week yesterday, although the losses were modest considering the beating that crude oil prices have taken this week on mounting evidence of a sustained supply glut in North America. Monthly Manufacturing Sales data was again very strong, rising 1.1% in April after a 0.8% increase in March. Today at 13:30 BST, Foreign Securities Purchases data will be released.

UK news

  • FT. Greece and creditors reach deal on next part of bailout. Europe to release €8.5bn but debt relief decision put off. Greece and its international creditors have reached a deal on the next stages of Athens’ €86bn bailout, removing the risk that it could default on more than €7bn in debt repayments that fall due next month. The deal ends months of uncertainty that have weighed on Greece’s recovery and spooked investors, allowing the country to secure money it badly needs while putting off difficult discussions on debt relief. Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting, said the outcome was “a major step forward” that would help put Greece’s economy on a sounder footing.
  • Reuters. Bank of England shocks markets with close vote on rate hike. The Bank of England shocked financial markets on Thursday when it said three of its policymakers voted for an interest rate hike, the closest it has come to raising rates since 2007, despite signs of a slowdown in Britain’s economy. The unexpectedly tight 5-3 vote adds questions over monetary policy to uncertainty over Britain’s political outlook since Prime Minister Theresa May failed to win a parliamentary majority in an election last week. BoE policymakers Ian McCafferty and Michael Saunders joined previous rate rise advocate Kristin Forbes in voting to reverse the BoE’s decision last August to cut rates to a record-low 0.25 percent, the BoE said. Governor Mark Carney and the four other members of the Monetary Policy Committee voted to leave rates unchanged.