Morning Report: 15 September 2015

15th September 2015 By: Ranko Berich

GBP Sterling remained range bound for another session yesterday, trading in tight ranges against both USD and EUR. Today’s fundamental data certainly has the potential to change this: the Consumer Price Index will be released at 09:30 BST and will be closely scrutinised for any signs of upwards price pressure. Last week, the Bank of England failed to give any indication that it was seriously considering hiking rates, despite the strong overall shape of the economy. No doubt a large part of the reason for this hesitance is the recent downwards trend in core inflation. The headline consumer price index has miles below the Bank’s 2% target for years now, but this has been largely explained as a matter of falling fuel prices. Core CPI excludes fuel, so it’s fall from 1.4% year on year in January down to 0.8% in June showed a broader trend of weak price pressure, that has left the BoE understandably spooked. In addition to CPI, price indices for producer prices, retail prices and house prices will be released.

EUR The euro’s latest upwards trend is showing signs of reversal this morning, with EURUSD falling more than half a percentage point from yesterday’s highs. This morning, the French Consumer Price Index has already disappointed expectations by rising only 0.3% month on month in August, not enough to make up for last month’s 0.4% contraction. At 10:00 BST, research company ZEW will release the results of its Economic Sentiment Survey, which is based on the future expectations of economists and analysts. The sub-index for Germany is usually more closely watched than the Europe-wide one, due to its large sample size and the importance of the German economy. Also out at this time will be eurozone Employment Change and Trade Balance data.

USD USD was well bid overnight, and performed well against most of the G10 except JPY and CAD. Despite volatility in Chinese equity markets and a hawkish surprise from the Bank of Japan overnight, US front end government bond yields remain rock solid, indicating that investors are resisting the temptation to pile into the normally safe assets due to the risk of rapid falls in bond prices off the back of Thursday’s looming Federal Reserve meeting. Although today’s 13:30 BST release of Retail Sales data for August would normally be a red-letter event for USD, the release is likely to be overshadowed by this same meeting. Later in the afternoon, Capacity Utilization and Industrial Production will be released at 14:15, followed by the Conference Board’s Leading Index at 14:30.

CAD CAD has been trading in tight ranges, and as of this morning is marginally up against USD overnight. Crude oil has once again formed a fairly convincing downwards trend this week, with WTI falling from around 46 $/b last Friday to around $44.39 at the time of writing. The prospect of interest hikes may be weighing on crude, as index-based investment in commodities wanes in the face of easier returns from government debt. No CAD data will be released today, so momentum and developments elsewhere will continue to influence the loonie.

UK News

  • Reuters. Higher UK minimum wage to hit hospitality hardest – report: British businesses in the hospitality, retail and social care sectors are likely to be challenged by a planned rise in the minimum wage and will need to find ways to boost productivity, an economic think tank said on Tuesday.