Morning Report: 14 July 2016

14th July 2016 By: Ranko Berich

GBP After taking a small step backwards yesterday afternoon, sterling is once again on the offensive this morning. Political uncertainty has diminished further in the last 24 hours, as Theresa May has made cabinet announcements including Boris Johnson and Phillip Hammond as Foreign Secretary and Chancellor of the Exchequer respectively. Further fiscal tightening seems unlikely, with Hammond quickly announcing there will be no “Brexit budget” featuring further spending cuts, and that further fiscal tightening over this parliament would be delayed or reduced. Looser fiscal policy could well prove to be a good thing for the UK economy after real wages have been stagnating for the better part of a decade. The Bank of England’s response to Brexit will become clear today, with the release of the latest Bank Rate decision at 12:00 BST, accompanied by a Monetary Policy Summary and meeting minutes.

EUR The euro drifted slightly higher against sterling and USD yesterday, but the single currency is somewhat out of the spotlight at the moment, as equities perform well globally and attention is focussed on political developments. Eurozone Industrial Production fell 1.2% in May, erasing most of April’s 1.2% spike. The French Consumer Price Index rose 0.1% month on month, less than the 0.2% expected by analysts. No headline data will be released today, so political developments will remain front of mind for the euro.

USD The dollar is again under pressure this morning, selling off against both sterling and the euro. Yesterday’s data schedule included Import Prices, which rose 0.2% after last month’s 1.4% spike. Today at 13:30 BST, the Producer Price Index will be released alongside weekly Unemployment Claims. Unemployment Claims were very low last week at just 254,000, underlining just how tight the labour market is becoming. Another low reading will intensify speculation about rate hikes, especially after last week’s strong Non-Farm Payrolls report and this week’s historically strong Job Openings and Labour Turnover Summary.

CAD As widely expected the Bank of Canada held interest rates at 0.5% yesterday, and the loonie strengthened after the optimistic Monetary Policy report and Press Conference that accompanied the decision suggested that the BoC was not planning further easing. Governor Stephen Poloz once again demonstrated his unshakeable optimism in the economy, while also talking down the prospect of any global consequences from the UK’s EU Referendum result. Today at 13:30 BST the New House Price Index will be released.

UK News

  • Reuters. Brexit vote ravages sentiment in UK housing market – RICS survey. Last month’s Brexit vote had an immediate impact on Britain’s housing market, causing buyer interest and expectations of future sales to wither at the fastest pace in years, a survey showed on Thursday.
  • Reuters. BoE poised to cut rates to cushion Brexit hit to UK. The Bank of England is set to cut interest rates for the first time in more than seven years as it tries to cushion the economy from the shock decision by voters to pull Britain out of the European Union.
  • FT. New chancellor Philip Hammond to scale back austerity. Hammond says economy is in ‘new phase’, supports Mark Carney, pledges to protect City. Philip Hammond, the new chancellor, has signalled a scaling back of austerity as he prepares to work with Bank of England governor Mark Carney on a plan to tackle the economic “shock” of Brexit.