Morning Report: 11 April 2016

11th April 2016 By: Ranko Berich

GBP Sterling started the week advancing against all G10 FX at the time of writing. A risk-on sentiment in markets is helping the pound to climb higher on the back of some better-than-expected data from Japan and China. No economic data is due today, but inflation data is released tomorrow including consumer, producer and retail prices figures; analysts will be looking for hints as to where producer and consumer prices are heading. On Thursday the Bank of England releases its last interest rate decision, minutes and monetary policy summary.

EUR The euro opened lower today dragged by the statements from European Central Bank’s Francois Villeroy this weekend who stated: “the ECB is not short of ammunition and still has available a number of powerful instruments”. Villeroy’s comments were in line with last week’s remarks from various ECB officials, who appeared to the media signalling that the ECB could recalibrate its stance towards monetary policy if economic growth and inflation do not recover soon. This week is a rather slow one with only inflation data for Germany, France and the Eurozone to be released on Tuesday, Wednesday and Thursday respectively.

USD The greenback started the week mixed, advancing against safe haven currencies such as the Swiss franc and the Japanese yen, while falling against a basket of commodity currencies and the British pound. Last week’s comments from several members of the Federal Reserve, showed an increasing division as to when the central bank should lift interest rates next. Most of the members agreed to hold interest rates at current levels in March’s meeting, but in April’s meeting some members dissented in favour of an increase in the US’s interest rate. A growing internal division in the Federal Open Market Committee could be felt in last week’s minutes, where a few members signalled that a lift in rates could be due as soon as the next meeting if macro data still supports their expectations of moderate growth and full employment. There is a chance that the Federal Reserve will make a non-scheduled statement this afternoon in order to clarify the recent divergence in statements from FOMC members, as the Fed are set to meet with their regional counterparts. Aside from this, retail sales and inflation data to be released on Wednesday and Thursday respectively.

CAD A very volatile crude oil market weighed on the loonie last week. Initially, oil prices were falling after Iran’s officials declared that no production freeze would be considered in this month’s OPEC meeting. However, a sharp decline in US oil stocks, and comments from Kuwait’s oil minister who stated that an agreement to freeze production could be reached even without Iran’s participation, enhanced crude oil markets sentiment, propelling an impressive rally in oil prices. That said, USDCAD has begun to diverge away from its strong correlation to the oil price over recent weeks, with the gap between the two being the highest since 2014. The Bank of Canada releases its last interest rate decision and minute’s statement on Wednesday at 15.00 BST, half an hour earlier than US crude oil inventories, being both potential market movers.

UK News

  • Reuters. UK economy lost steam in Q1, industry survey shows. Britain’s economy lost steam in the first three months of the year, according to a major survey of businesses that showed domestic demand slipped for both services and manufacturing companies.
  • The Guardian. Weak UK industry data set to weigh on economic growth. Official figures showed factory output fell by 1.1% in February, a much sharper decline than economists had been expecting. Even before the UK’s steel crisis escalated last month, crude steel production weakened in January and February and was the lowest for seven years, the Office for National Statistics (ONS) said.