Morning Report: 15 April 2015

15th April 2015 By: Ranko Berich

GBP Sterling took advantage of the dollar’s weakness to make somewhat of a recovery yesterday, despite sluggish inflation data. The Consumer Price Index showed 0.0% change year on year in March, well below the Bank of England’s target. Mark Carney and the Bank of England have been quick to blame recent falls in headline CPI inflation on cheaper food and fuel, but March’s data suggests the UK could have a real problem with a lack of inflation. What stood out in yesterday’s data was that even once food and fuel are removed from headline CPI, inflation still fell to 1 per cent year-on-year. This makes it far more difficult for the Bank to claim that inflation will return to target after the current shock to fuel price recedes, and should this trend continue for a quarter or two more, the BoE will be forced to engage in an earnest discussion of rate cuts, something that would weigh heavily on sterling. Today at 14:30 BST, the Conference Board will release its Leading Index, an amalgamation of various economic indicators that is designed to indicate the future direction of the economy.

EUR The euro also rallied yesterday, mostly due to dollar weakness. Industrial Production figures for February finally showed significant growth, after months of going sideways. This is consistent with a general improvement in eurozone economic news, something that will certainly not go unmentioned in today’s European Central Bank Press Conference at 13:30 BST. The press conference is likely to be somewhat of a victory lap, given the ECB’s quantitative easing programme appears to be succeeding in both its explicit primary objective of lowering prevailing short term interest rates, and also in its implicit objectives of supporting the eurozone’s economy and restoring confidence. Tough political questions are likely to be raised around Greece’s debt situation, but ECB President Mario Draghi is an adept user of the media and he is likely to insist that the Bank will only stick to its existing rules and not play politics. French and German Consumer Price Index figures have already been released this morning, showing healthy 0.5% and 0.7% increases in the respective consumer price indices over March.

USD The United States dollar reacted badly to poor Retail Sales data yesterday, confirming the Dollar Index’s failure to break the key psychological 100.00 level. March Retail sales grew 0.4% after automobiles were excluded, missing expectations for a more robust recovery after several months of decline. The disappointing release adds to a tide of US data that has fallen short of forecasts, and is weighing on the dollar. The Producer Price Index also posted a smaller than expected recovery, and the National Federation of Independent Businesses’ Small Business Index fell, indicating a drop in confidence amongst the survey respondents. Today at 13:30 BST, the Empire State Manufacturing Index will be released, followed by Capacity Utilization and Industrial Production data at 14:15.

CAD Today has the potential to be a decisive day for CAD, with the Bank of Canada’s latest Monetary Policy Report due at 15:00 BST, alongside a Rate Statement and the latest interest rate announcement. A Press Conference will be given by the Bank’s Governor, Stephen Poloz at 16:15. One of the most important thing to look for in today’s report will be clarification the BoC’s reasoning behind January’s surprise rate cut. Observers will be looking to deduce if the surprise January rate cut was a proactive once-off attempt to act quickly and decisively as a form of “insurance” against inflation, or if more rate cuts are on the cards. A rate cut today seems unlikely, but is certainly a possibility.

UK News

  • FT. Tory ‘tax free minimum wage’ plans to cost £3.7bn: Conservative plans to push up the income tax personal allowance to at least £12,500 by 2020 — and legislate for a “tax free minimum wage” — would cost at least £3.7bn a year, according to an independent think-tank.
  • FT. IMF praises UK’s ‘solid’ growth: Britain’s economy and growth rate is “solid”, the International Monetary Fund said on Tuesday, providing a boost to the Conservatives as the party unveiled its general election manifesto.
  • FT. UK inflation stays at zero in March: The UK has avoided its first period of deflation since the 1960s for another month, with prices remaining unchanged in the year to March.
  • Telegraph. Boost for economy as retail sales grow: Early Easter and robust consumer confidence drive UK retail sales up by most for almost a year.