Morning Report: 11 July 2016

11th July 2016 By: Ranko Berich

GBP Sterling has started the week in a general weak tone as markets are expecting an interest rate cut by the Bank of England (BoE) on Thursday at 12:00 BST. According to a Bloomberg survey, 30 out of 54 economists expect an interest rate cut of 25 basis points this week, 6 expect more aggressive cuts and the remainder expect rates to be on hold. The BoE’s releases on Thursday include the interest rate decision, the Monetary Policy Summary and the MPC’s official bank rate vote. On Tuesday, the Bank of England’s Governor, Mark Carney, and his colleagues of the MPC, speak before the Parliament’s Treasury Committee on UK’s inflation and economic outlook. The real estate sector and future of monetary policy will probably play a major role in the hearings.

EUR The euro has falling against the dollar this morning, but has recovered some of Friday’s lost ground versus sterling. Politics dominate the Eurozone’s scene this week. The Eurozone’s Finance Ministers have to decide whether to sanction Spain and/or Portugal because of their respective excessive budget deficits. The sanctions could include fines and the suspension of access to EU emergency funds. If the sanctions are not imposed, the Eurogroup risks losing its credibility; but if they are imposed, it could look discretionary and reinforce the views of EU-sceptics. Today’s only release was the Italian industrial production data which was released today at 09:00 BST showing a 0.6% contraction from last month.

USD The US dollar is rallying against most of the G10 currencies after last Friday’s job report. The number of jobs created jumped above all economists’ forecasts to 287.000 versus median estimates of 180.000 jobs. Wage inflation, represented by the average hourly earnings, grew to a seven-year high. The Federal Reserve now needs to strike a balance between sustaining an extremely accommodative monetary policy to keep boosting the economy and the risk of an abrupt increase in inflation due to the accelerating wage growth. Esther George, FOMC member, speaks today about the US economy in Missouri at 15:00 BST.

CAD This morning the loonie is falling for the third consecutive session following a sharp drop in WTI crude oil price from above $50/barrel to below $45/barrel, a drop of near 13% since the end of June. Crude oil prices are falling due to increasing gasoline stockpiles, which are reluctant to drop despite US gasoline demand at this year’s highs. The number of rigs targeting crude in the US have increased to the highest number since last April, which is prompting a reduction of long positions in crude oil. The Bank of Canada meets on Wednesday to decide on interest rates. Brexit, weak economic growth prospects and a sharp drop in non-resource exports could lead to a dovish stance by the central bank.

UK News

  • Reuters. EU vote hits UK households and business morale, London hurt most. British consumer spending fell last month, the business outlook darkened by the most in four years and economic activity in London slowed sharply, according to three reports which showed the vote to leave the European Union starting to take a toll.
  • FT. Theresa May vows corporate crackdown on ‘privileged few’. Call for worker representatives on director boards and binding votes on excessive executive pay. Theresa May, the frontrunner to become the next prime minister, has pledged to tackle “vested interests” in the corporate world with plans to put worker representatives on all main British company boards and impose tighter control on executive pay.