Morning Report: 12 July 2016

12th July 2016 By: Ranko Berich

GBP Sterling has been buoyed by news that Theresa May will be the nation’s next Prime Minister, after rival Andrea Leadsom quit the race for party leadership over the weekend. Regardless of May’s policies or cabinet changes, the fact that the UK has a Prime Minister reduces some of the uncertainty that was weighing on the currency. Looking ahead, the next major area of uncertainty revolves around the negotiating position May and her cabinet will take in talks with the EU over the trading relationship Britain will have with the block. Brexit campaigners promised single market access and controls on immigration, something that European Leaders have said is impossible. May could choose to compromise partly on immigration in order to achieve single market access, or could attempt to negotiate a bilateral trade deal. Mark Carney will once again square up to lawmakers today at 10:00 BST, when he testifies alongside other Monetary Policy Committee members to lawmakers. Carney’s testimony could contain market-moving information as the Governor is likely to be questioned extensively about the Bank’s approach to monetary policy in the immediate future. Earlier in the morning, meeting minutes from the Financial Policy Committee will be released at 09:30. Later in the week, the Bank’s latest rate decision will be announced on Thursday, accompanied by the relevant statements and monetary policy summary.

EUR The euro strengthened against the US dollar yesterday, but fell back slightly against sterling. Equities have been performing well globally, indicating that investors are not particularly averse to riskier assets at the moment, and this environment appears to be euro positive for now. This week will be slow in terms of euro data, although German Consumer Price Index data has already been released this morning, showing inflation rising 0.1%. French and eurozone wide CPI data will be released on Wednesday and Friday respectively.

USD USD is under pressure this morning, having lost ground to both GBP and EUR, despite Friday’s strong Non-Farm Payrolls report and falling crude oil prices. Today is a busy day for USD, with the NFIB Small Business Index out at 11:00 BST and speeches from the Federal Open Market Committee’s Tarullo and Bullard at 14:15 and 14:35 respectively. At 15:00 the monthly Job Openings and Labour Turnover Summary will be released. Later in the week, Consumer Price Index data will be released alongside monthly Retail Sales on Friday.

CAD The loonie weakened against USD yesterday, but recouped almost all of its losses overnight as crude oil prices rose slightly from near yesterday’s lows. Monthly Housing starts exceeded expectations on release yesterday, indicating the economy could enjoying a small bump from construction. This week’s biggest event for CAD will be Wednesday’s Monetary Policy Report from the Bank of Canada, which will be accompanied by a Press Conference, as well as the announcement of the latest interest rate decision.

UK News

  • FT. Theresa May on brink of becoming next UK prime minister. Andrea Leadsom pulls out of Conservative party leadership race. Mrs Leadsom backed Mrs May to become leader in a statement to the press from Westminster just after midday. “We need a new prime minister in place as soon as possible. Theresa May is ideally placed to implement Brexit on best possible terms for the UK,” Mrs Leadsom said.
  • Reuters. UK retail spending slowed in June as Britons faced EU referendum: BRC. British consumer spending slowed in June as bad weather added to uncertainty around the June 23 referendum on Britain’s membership of the European Union, a survey showed on Tuesday. There were also fresh signs of pessimism among the country’s manufacturers in the run-up to the referendum, but a leading credit card firm said spending rose immediately after the vote.