Morning Report: 16 April 2015

16th April 2015 By: Ranko Berich

GBP Sterling rallied tentatively yesterday, rising against USD and the euro slightly during a volatile trading session. UK data was light on the ground, although the Conference Board did release its Leading Index, a combination of various forward looking economic indicators. The Index rose 0.6% in February, indicating an acceleration in economic growth. The breakdown of the indicators used revealed growth in all seven of the indices, with the volume of expected output, stock prices and order book volumes posting the largest increases.

EUR The euro rallied off the back of an upbeat central bank conference yesterday, but government bond yields have plummeted further so gains may be short-lived. The ECB press conference may have begun with a scene in the form of a protestor throwing confetti, but Mario Draghi recovered quickly to take centre stage and confidently assert to markets that his QE plan was working, and not going anywhere soon. The ECB president has made it absolutely clear that QE will remain in place despite short-term fluctuations in data. Inflation expectations were falling through most of 2014, offsetting the successive cuts in nominal interest rates. Likewise, inflation expectations in the Eurozone have now recovered, giving Draghi proof that the programme is having its desired effect and has been successful in lowering real interest rates.

USD The United States dollar faltered again yesterday, as yet more disappointing data was released. Capacity Utilization fell to 78.4% in March, indicating that more productive assets are being idle in the economy. Industrial Production figures also fell short of expectations, falling 0.6% in March. Although frigid weather conditions may be to blame here, this point has been largely lost on markets, and the dollar’s strength fizzled yesterday. Today at 13:30 BST, Building Permits will be released together with Housing Starts and weekly Unemployment Claims. Later in the afternoon at 15:00, the Philly Fed Manufacturing Index will be released, followed by two speakers from the Federal Open Markets Committee, Dennis Lockhart and Stanley Fischer, at 18:00 and 20:00 respectively.

CAD Yesterday was a decisive day for CAD, which strengthen markedly against the US dollar, finally breaking outside the trading range it has been in since January. The developments were driven by a rather optimistic central bank conference from Bank of Canada governor Stephen Poloz, which accompanied the Bank’s latest Monetary Policy Report. The Report and Press conference together indicated it was less likely that the BoC will cut rates further in 2015, and that the negative effects of oil prices would be more front loaded than previously thought. Poloz did describe the lower oil price as having an “atrocious” effect on the economy, but the BoC does seem to believe that the worst may now be over. The BoC expects economic growth to rebound in 2015, and the labour market to continue to improve modestly.

UK News

  • FT. New home shortage threatens to push up prices: A shortage of new homes is threatening to push UK house prices up again after a slowdown in growth this year.
  • Telegraph. IMF: UK will fail to balance the books by 2020: International Monetary Fund says government spending is likely to be higher over the next five years than implied in the Budget.
  • Daily Mail. Landlords race to remortgage and take advantage of record low buy-to-let rates amid ‘political uncertainty’: Buy-to-let landlords are rushing to remortgage as record low rates look increasingly attractive, new data from a mortgage broker shows.