Morning Report: 13 March 2015

13th March 2015 By: Ranko Berich

GBP For a moment yesterday morning it looked like sterling had found some strength to resist the US dollar, but the pound’s brief rally was cut short in the afternoon and GBPUSD fell to fresh lows. GBP’s retreat was also felt in the euro exchange rate. Bits and pieces of data were released, but none were major market movers. The Royal Institute of Chartered Surveyors reported that the majority of its members were witnessing rising house prices in their areas. Official Trade Balance statistics showed the United Kingdom recorded a smaller than expected trade deficit in January. Encouragingly, service exports also contributed to the improvement, in addition to oil price falls. Mark Carney reiterated the Bank of England’s willingness to engage in cautious and gradual rate hikes in a speech in Sheffield. Today at 09:00 GMT, the Monetary Policy Committee’s Minouche Shafik will speak in London, and Construction Output data for January will be released at 09:30.

EUR After several sessions of unconditional surrender to the US dollar, the euro finally found some backbone yesterday. Despite the European Central Bank’s ongoing asset purchase programme, German 10 year government bond yields stabilised and even mounted a slight rally. How durable the euro’s rediscovered strength will be is highly doubtful, however. German and French Consumer Price Index data showed monthly spikes in inflation, jumping 0.9% and 0.7% month on month respectively. The main cause of these moves was the euro’s spectacular devaluation. European Industrial Production data showed a fall of 0.1% in January, after a 0.3% spike previously. German Bundesbank President Jens Weidmann said in a speech that he was against the ECB’s bond buying programme, as the eurozone’s economy was already recovering. Weidmann was outmanoeuvred by ECB president Mario Draghi, and ultimately overruled, but his opposition to quantitative easing is nonetheless interesting.

USD The United States dollar continued to perform well against sterling yesterday, but finally hit some resistance against the euro. Yesterday’s Retail Sales data showed monthly contractions in sales during February, the third straight month of declines after a bumper month in November. However, this is probably not a cause for concern. Consumer spending hasn’t been a main driver of the US economic recovery and we are still yet to see a sustained period of strong real wage growth. All in all, it’s entirely understandable that US consumers haven’t opened their wallets unconditionally. Today at 12:30 GMT, the Producer Price Index for February will be released, followed by weekly Consumer Sentiment and Inflation Expectations data from the University of Michigan, at 14:00.

CAD CAD rallied against USD yesterday morning, but since then has reversed almost all of its gains. The New House Price Index yesterday showed a slight contraction in house prices, while Capacity Utilisation in the economy rose to 83.6% in Q4 2014. Today, far more significant data will be released at 12:30 GMT: monthly unemployment statistics. The economy recorded modest jobs growth last month, should the pace of improvement accelerate this month there could finally be cause for optimism for the Canadian economy.

UK News

  • FT. Carney points to delay in raising rates: in other countries and the rise in sterling might force the Bank of England to delay raising interest rates, although the most likely next move was still upward.
  • FT. UK trade deficit falls to 14-year low: The UK’s trade deficit has fallen to its smallest level for more than 14 years due to a steep drop in the cost of oil imports.
  • Reuters. UK economy grew 0.6 percent in three months to February – NIESR: Britain’s economy probably grew by 0.6 percent in the three months to February, the same pace as in the three months to January, the National Institute of Economic and Social Research said on Wednesday.
  • Reuters. British house prices pick up more than expected in February: British house prices rose more than expected in February, according to a survey that suggested a growing shortage of properties might herald the end of a slowdown in the market.