Morning Report: 16 September 2015

16th September 2015 By: Ranko Berich

GBP Yesterday’s inflation data was decidedly lukewarm, and sterling sold off against both EUR and USD throughout the day. The headline Consumer Price Index fell to 0.0% year on year, while core inflation, which excludes energy prices and so is viewed as more stable, also fell to 1%. The inflation report detailed another month in which there was just no sign whatsoever of upwards price pressure in the UK, and justifies the Bank of England’s extreme caution on interest rates. Not much is likely to change for the rate outlook, and therefore for sterling, until these facts begin to change. Producer Price indices hardly gave any cause for optimism: input prices fell 2.4% month on month, and output prices fell 0.4%. Today at 09:30 BST, labour market data including the Unemployment Rate and Average Earnings Index will be released.

EUR The euro continued its modest downwards trend vs USD yesterday, and also weakened slightly to GBP after a volatile session. Research company ZEW’s Economic Sentiment survey for Germany and the eurozone showed deteriorating optimism among the surveyed analysts and economists. But employment data for Q2 showed net employment increasing 0.3% quarter on quarter. Today at 10:00 BST, the latest Consumer Price Index data for the eurozone will be released. The European Central Bank has made it clear recently that it was willing to expand it quantitative easing programme if necessary, so a large downwards shock to inflation this morning could raise expectations of additional easing and weaken the euro.

USD USD is beginning to gain momentum ahead of tomorrow’s all-important Federal Reserve meeting. Government bond yields are rising rapidly, showing that markets are beginning to take the prospect of rate hikes more seriously, despite some lukewarm data releases yesterday. Retail Sales grew 0.2% month on month, not bad but below expectations and consistent with a general slowdown in retail sales compared to a year ago. Industrial Output data also fell short of expectations, contracting 0.4% in August after expanding a healthy 0.9% previously. All in all, it’s fairly clear that the US economy is slowing down somewhat, despite a very healthy labour market. Today at 13:30 BST Consumer Price Index data will be released, and given inflation is the Fed’s primary target a big shock here certainly has the potential to create significant USD movement.

CAD Oil prices bounced yesterday, giving CAD a burst of strength and giving and CAD sellers their best rates against USD so far this week as of the time of writing. As always, how long this strength will last is far from certain. Although some Canadian data will be released today in the form of Manufacturing Sales and Foreign Securities Purchases at 13:30, the most important release for the day will be US Crude Oil Inventories at 15:30. Crude stockpiles have been increasing for two consecutive weeks now, and a third week of gains will further raise concerns of another supply glut in North American markets.

UK News

  • Reuters. Osborne warns Labour would wreck the British economy: Chancellor George Osborne said that if the Labour Party under Jeremy Corbyn ever won power it would wreck the British economy with money printing, higher borrowing and punitive income taxes.
  • Reuters. UK inflation slips back to zero, BoE rate hike months away: British inflation fell back to zero in August after oil prices dropped at the fastest rate since the start of the year, keeping annual price growth far below the Bank of England’s target and an interest rate rise off the table for now.
  • Daily Mail. 75% fall in annuity income in 15 years: Ageing population and rock bottom interest rates blamed for the fall on pension income: A pensioner retiring today would receive just a quarter of the annuity income of a worker retiring 15 years ago, research has shown.
  • Daily Mail. House prices up £5k in July compared to previous month – but annual growth continues to slow after last summer’s boom: House prices in Britain were up 5.2 per cent in July 2015 compared to a year ago, down slightly from the annual growth of 5.7 per cent recorded in June, official data showed today.