Morning Report: 13 April 2015

13th April 2015 By: Ranko Berich

GBP Sterling begins the week on the back foot, after making substantial losses against USD last Thursday and Friday. Two crucial data releases are scheduled this week; the Consumer Price Index tomorrow at 09:30 BST and labour market data including the Average Earnings Index and Unemployment Rate on Friday at 09:30. Given the ongoing general election campaign, the data will be even more closely examined than in previous months, given that real wage growth consists of nominal wage growth less inflation. Despite the substantial falls in unemployment seen over recent years, living standards as measured by real wages remain some 10% below pre-recession levels, making the statistic something of a political football. Real Wages are now finally growing, largely because of low inflation, but given the 5 years of decline following the global recession much more growth is needed. If wage growth accelerates we can expect to see an increasingly confident Bank of England, alongside more swagger from the government. Further tepid wage growth on the other hand, may provide the coalition’s competitors with some valuable fresh ammunition.

EUR The euro also took a beating from the US dollar last week, and is now once again eyeing the multi-year lows seen in mid-March. This week’s key euro even will be the European Central Bank’s Press Conference, which will follow the latest rate announcement on Wednesday at 13:30 BST. With Mario Draghi’s quantitative easing programme performing exactly as advertised, the ECB’s press conference looks likely to be something of a victory lap. Interest rates are down, lending and business confidence are up, and the euro has been completely destroyed. Draghi will be quick to insist that weakening the euro was not a goal of monetary policy, but it’s nothing short of manna from heaven for European exporters, and the ECB’s policies are largely responsible. Negotiations over the Greek debt crisis will continue this week as Greece rushes to submit the list of reforms they plan to make in exchange for more bailout lending.

USD After a two-week retracement the dollar is once again on the offensive, with the oft-quoted Dollar Index approaching the 100.00 level, which if surpassed would be a strong sign of a bull market for the dollar. Ample US data will be released this week, beginning with Retail Sales data tomorrow at 13:30 BST. Several important surveys are due including the Empire State Manufacturing Index and the Philly Fed Manufacturing Index on Wednesday and Thursday respectively. Later in the week, on Friday, the Consumer Price Index will be released.

CAD CAD was surprisingly resistant to the tide of dollar strength that swept markets on Thursday and Friday, although some weakness was seen. Friday’s labour market data was positive, showing the creation of 28,700 jobs in March and the Unemployment Rate falling to 6.8%, both results slightly better than expected. The positive data is unlikely to create much durable upside for CAD however, as the large move seen over the last 6 month on CAD has been mostly due to lower oil prices. Crude has staged somewhat of a recovery since the start of the month, lending support to CAD, although further tumbles remain a possibility. This Wednesday will see the Bank of Canada release its latest Monetary Policy Report at 15:00 BST, accompanied by a press conference and the latest rate decision.

UK News

  • FT. UK salaries rising for skills in short supply: After six years of falling real wages, data published on Friday suggest that advertised salaries are rising quickly in the UK for workers with scarce skills, but across-the-board pay settlements remain subdued.
  • Reuters. UK economy likely maintained pace in Q1 – NIESR research group: British economic growth probably held at 0.6 percent in the first quarter of this year, the same pace as at the end of last year, the National Institute of Economic and Social Research said on Friday.
  • Guardian. UK-wide property to outperform London, analysts forecast: House prices predicted to rise 1.5% nationwide but dip 3.6% in London in 2015 as result of the euro’s weakness, mansion tax fears and raised stamp duty in capital.