Morning Report: 1 September 2015

1st September 2015 By: Ranko Berich

GBP With yesterday a bank holiday in the UK, there were no economic data releases for the pound. However, sterling does remain close to its monthly lows against both the EUR and USD, as markets continue to push back the prospect of any interest rate hikes, being led by the belief that the Bank of England will not raise rates before the Federal Reserve. In political news, David Cameron has scrapped demands from full British exclusion from EU employment laws ahead of the planned referendum on UK membership of the European Union. The move in favour of the EU’s more protectionist plans is thought to be designed to appease the front runner in the next Labour leadership contest, Jeremy Corbyn, as Cameron intends to campaign for a ‘Yes’ vote, and will be seeking Labour’s support. Today, manufacturing data is due out at 9.30am BST.

EUR The euro has now well and truly fallen back within its calendar year range against the US dollar, after having seen a brief spike at the start of last week. Markets failed to significantly react to inflation data yesterday, which came in as forecast at an annualised 0.2%, though there is a raft of Eurozone manufacturing numbers set for release today. The euro is still set to give up yet more ground against the US dollar over the coming months, with analysts beginning to speculate if the European Central Bank will extend its current €1.1 trillion stimulus programme, as data continues to show that the economic recovery in the Eurozone remains so tepid. Key to this speculation will be Thursday’s ECB press conference, where President Mario Draghi will once again take centre stage.

USD  The US dollar continues to see a mixed performance after last week’s extremely volatile moves, as a plethora of events continue to trigger speculation in both directions on the greenback. The major event was the Jackson Hole summit, where key Federal Reserve officials debated the performance of the US economy. Ostensibly, the summit was fairly bullish: Fed Vice Chair Stanley Fischer highlighted that the economy continues to be buoyant, and the employment situation is, in historical terms, excellent. However, inflation levels still remain anaemic, and with the economy having almost failed to move positively at all for almost seven years, there seems to be little actual need to hike interest rates, no matter how sure markets had previously been that a September hike was on the table. Moreover, with China re-igniting its currency war against the US, stock markets having seem extreme volatility over recent weeks, and oil markets continuing to gyrate violently, it is now far from clear what, or when, the Fed’s next move will be.

CAD The Canadian dollar saw a huge boost yesterday, rising 1.5% as oil prices finally saw an almost 30% rally in crude oil over the past few days. The soaring price was triggered by a US Energy Information Administration report that sharply revised down the estimates of the oil glut in the US, which combined with speculation that OPEC producers are preparing to speak to rival producers in a bit to cut supply. In total, the rally in oil prices was the largest since the US invasion of Kuwait back in 1990, finally providing at least some relief to the loonie. Today, GDP figures from Canada are set for release at 1.30pm BST.

UK News

  • Reuters. UK mortgage approvals rise in July to highest level since February 2014: British mortgage approvals rose in July to hit their highest level since February 2014, Bank of England data showed on Tuesday, adding to signs Britain’s housing market is regaining momentum.