Morning Report: 14 April 2016

14th April 2016 By: Ranko Berich

GBP Sterling is falling this morning against most G10 currencies as markets await the Bank of England’s latest monetary policy decision today at 12.00 BST. The Bank of England could revise downwards its economic projections amid Brexit risks, and markets will pay attention to any hint of future looser monetary policy in order to tackle potential threats to the UK economy. In the early hours of this morning, a report showed UK house prices falling to 9-month lows, which caused sterling to drop by over a cent during the night. Later today at 21.00, Monetary Policy Committee’s member Shafik will give a speech at the International Monetary Fund.

EUR The euro has had somewhat of a mixed bag this morning, weakening against the US dollar and strengthening versus sterling. No apparent trend appears to be forming in euro crosses this week, as markets await for clearer signals in the form of fundamental data from the eurozone. Eurozone Consumer Prices Inflation (CPI) data is released today at 10.00 BST, which will show whether inflation has picked up in the eurozone following the most recent expansion in monetary policy by the European Central Bank. It may still be soon to expect a significant change from such measures, but some ECB officials have already signalled their discomfort with the single currency’s strength, which could ultimately be counterproductive for inflation.

USD The dollar joins equities in this week’s risk-on mood, and this morning the greenback is appreciating against most of the other G10 currencies. Yesterday’s worse-than-expected retail sales data in the US did not stop the dollar’s advance, which could be more of a reflection of a currently unbalanced market in favour of the dollar. Like the Eurozone, CPI data is also released today in the US at 13.30 BST. Inflation forecasts show a slight increase in consumer prices that could stimulate markets to price in higher inflation expectations in the near term and, subsequently, investors could bring forward interest rate hike prospects which could, in turn, lead to further dollar strength.

CAD The loonie fell yesterday against the US dollar after failing to break below a strong support level. Crude oil inventories data in the US showed a massive weekly increase in oil stocks of 6.6M as expectations were for an increase of just 0.9M. Oil prices have recently been volatile and difficult to predict as the market’s reaction to the last two oil inventory reports can attest. Crude oil inventories fell last week by 4.9M, which prompted a 3.75% rally in oil prices. However, a proportionally larger rise in oil inventories yesterday of 6.6M, caused only a 0.5% drop in prices. The market will now turn its attention to this weekend’s OPEC meeting in Doha, where it is expected that an agreement to freeze production will be implemented. Aside from this, the Bank of Canada, yesterday, kept monetary policy unchanged, although the overall message was reasonably optimistic about Canadian growth prospects in non-resource sectors where employment has been rising steadily.

UK News

  • Reuters. RICS house price index hits nine-month low as EU vote nears. Britain’s housing market looks set for a soft patch in the run-up to June’s referendum on European Union membership, surveyors said on Thursday, forecasting the slowest house price growth in almost a year.
  • Reuters. Brexit vote would damage UK economy, may push BoE to cut rates. A British vote to leave the European Union on June 23 would hurt the economy, an overwhelming majority of economists said in a Reuters poll, and could push the Bank of England to cut interest rates for the first time since the financial crisis.
  • Reuters. Oil falls as dark clouds appear ahead of producer meeting. Oil fell on Thursday as the International Energy Agency trimmed its forecast for demand growth and on signs that a producers’ meeting this weekend will not yield a concrete plan to reduce oversupply.