Morning Report: 11 September 2015

11th September 2015 By: Ranko Berich

GBP Yesterday’s Bank of England minutes had no clear-cut message for or against rate hikes, and sterling was largely unaffected apart from a brief spike of volatility. GBP instead continued its upwards path against USD, and remained range bound against the euro. The minutes themselves contained plenty of the refrains now familiar to MPC watchers: rate hikes, when they do come, would be “limited and gradual”, rates would only follow a “gently rising path”. That the official Bank Rate remained unchanged in yesterday’s announcement came as no surprise. This time around, however, the minutes were slightly clearer on why the MPC was holding fire on rates. The majority of members appeared to believe that improving productivity meant that rates could remain low, and wages could continue to rise, without creating an inflationary spike. Of course, this dovish majority is likely to evaporate quickly if inflation begins to pick up rapidly. This morning at 09:30 BST, Construction Output for July will be released alongside Consumer Inflation Expectations.

EUR The euro once again showed a lot of strength against USD in yesterday’s session, with EURUSD closing well above its 200 day moving average, a bullish sign for the single currency. Ireland’s Gross Domestic Product grew at a scorching 6.7% year on year, a sign that the Celtic economy has returned to the “boom” part of the cycle that its status as a small, open economy seems to entail. This has already been an eventful morning in terms of eurozone data, but the euro has yet to react to the morning’s developments. The European Central Bank’s Benoit Coeure, speaking in the Netherlands, assured markets that the ECB would continue asset purchases for as long as they were needed, a point already made clear at the last ECB press conference. German Consumer Prices changed 0.0% month on month in August, while Wholesale Prices contracted 0.8%. Ahead of tomorrow’s formal eurogroup meeting, the eurozone’s finance ministers will meet today.

USD Two days of good labour market data failed to support the dollar yesterday, which weakened against both GBP and EUR. Weekly unemployment claims were just 275,000, bringing the 12 month average of the statistic close to its lowest level since 2000. Earlier this week, the Job Openings and Labour Turnover Summary showed job openings at an all-time high. This labour market tightness is a compelling reason for the Federal Reserve to seriously look at rate hikes, but markets appear to have completely disregarded this prospect for now. Today at 13:30 BST, Producer Price data for August will be released, ahead of the University of Michigan’s weekly surveys for Consumer Sentiment and Inflation Expectations at 15:00.

CAD CAD once again fell back against USD, as US crude oil inventories rose for the second week running and crude oil prices fell as a result. US Crude Oil Inventories rose by 2.7 million barrels, showing a supply glut deepening in North American markets. Capacity Utilization data for Q2 showed that utilization fell, while the New House Price Index also disappointed expectations in July. No data will be released today, leaving CAD at the mercy of oil prices and developments in elsewhere.

UK News

  • Reuters. Nearly half of Britons expect rate hike in next 12 months – BoE survey: People in Britain are increasingly heeding the message from Bank of England Governor Mark Carney that the time is coming for a first increase in interest rates since before the financial crisis.
  • Reuters. UK construction output dips in July as house-building falls: British construction output unexpectedly dipped in July on the month, reversing a bounce seen in June, after the biggest annual fall in house-building in more than two years, official data showed on Friday.
  • Reuters. Bank of England keeps rates steady, unfazed by overseas risks: The Bank of England said on Thursday its rate-setters felt the threat to the world economy from China’s stock-market slump did not signal a slowdown for Britain, as they left interest rates at a record-low of 0.5 percent.