Morning Report: 16 March 2015

16th March 2015 By: Ranko Berich

GBP Sterling fell to a fresh low against USD on Friday, reaching its weakest level against the greenback since 2009. The collapse of the GBPUSD exchange rate had consequences elsewhere, and sterling also fell back against the euro. Construction Output data for January showed an unexpected decline of 2.6% in output, as new homebuilding plummeted. The fall in January was so sharp that year on year construction output registered its first fall since May 2013. Skills shortages and weak mortgage lending were the main culprits in the decrease. This week’s important sterling release will be Wednesday’s labour market data at 09:30 GMT. Along with the Unemployment rate, the Average Earnings Index release will be closely watched for further improvements in wages.

EUR The start of the ECB’s quantitative easing programme last week caused a rout in the euro: EURUSD fell more than 3.5% over the course of the week as asset yields fell across the eurozone. Friday also saw the release of the German Wholesale Price Index, which showed an encouraging increase in prices after months of decline. The ECB’s programme continues this week, meaning the euro will come under further pressure. This week will be light on eurozone data, with the exception of tomorrow, when official Consumer Price Index data for February will be released together with ZEW Economic Sentiment data at 10:00 GMT. No data will be released today, but the European Central Bank’s President Mario Draghi will speak at 18:45 in Frankfurt.

USD The United States dollar had a spectacular week last week, strengthening across the board. Friday’s lukewarm data releases did little to dent optimism on USD. The Producer Price Index showed producer prices falling across a broad range of items, which bodes ill for future consumer price inflation. Even once food, energy and trade were excluded, prices continued to fall, suggesting that inflationary pressure in the US may be weaker than headline inflation would indicates. Given the rampant US strength currently being seen, all eyes will be on the US Federal Open Market Committee for the release of the latest FOMC statement and Economic Projections, together with the latest Federal Funds rate, on Wednesday at 18:00 GMT. Expectations are high for the Fed to steer firmly towards rate hikes in the language of its statement, so high that should the wording of the statement be insufficiently hawkish on rate hikes, USD could experience a rapid pullback. The Empire State Manufacturing Index will be released today at 12:30, followed by the Capacity Utilization Rate and Industrial Production data for February at 13:15.

CAD There was no reprieve for CAD last week, and loonie opens this week near multi-year lows against USD. Friday’s Unemployment data only showed a slight increase in unemployment, to 6.8%.  Much of the job losses were in the natural resource sector, upon which Canada’s economy has traditionally relied. This week, Manufacturing Sales data will be released on Tuesday at 12:30 GMT, followed by Wholesale Sales at the same time on Wednesday, and the Consumer Price Index on Friday.

UK News

  • FT. High street takes further knock as more stores disappear: Shop closures on the high street worsened in 2014, with rising consumer confidence failing to lift town centres.
  • FT. UK government under fire over tax ‘weaknesses’: Tax revenues have barely kept pace with national income since 2009 despite more than £16bn of tax increases, according to a think-tank that criticised the government for failing to tackle the “underlying weaknesses” in the taxation system.
  • FT. Housebuilding slowdown threatens UK recovery: A slowdown in housebuilding caused output in the UK’s construction industry to slump unexpectedly in January, falling 2.6 per cent compared with December.
  • Reuters. Asking price growth slows for homes in England, Wales – Rightmove: Asking prices for homes on sale in England and Wales rose by one percent in the month to early March, the slowest increase for the time of year since 2012 and another sign of a cooling in the housing market, property website Rightmove said on Monday.
  • Telegraph. George Osborne is right to extend pension reforms: Telegraph View: The reforms expected in the Chancellor’s 2015 Budget will offer a promise to millions of older people if the Tories win on May 7.
  • Telegraph. Budget 2015: George Osborne to unveil major review of business rates: The Chancellor’s Budget will contain plans for the biggest review of business rates “in a generation” in a bid to save high street shops from the threat of internet companies.
  • Telegraph. British ‘Mittelstand’ punches well above its weight in UK economy: The UK’s midmarket has upped its economic output by a third in five years and is the nation’s most significant job creator.