Morning Report: 18 July 2016

18th July 2016 By: Ranko Berich

GBP Despite taking a big hit on Friday afternoon, sterling managed to close last week stronger than it began against USD and EUR. Decreased political risk due to the installation of Theresa May as Prime Minister drove much of the rally, although global investor sentiment was generally positive towards risk throughout the week, only wavering late Friday on news of an attempted coup in Turkey. Barring any major developments, market attention is likely to turn away from political risk and towards economic data this week, with the week’s economic calendar laden with headline releases. Inflation and Labour Market data will be released on Tuesday and Wednesday respectively, providing the most up to date look at the wage and price dynamics of the economy. Later in the week, Retail Sales will be released on Thursday and Purchasing Managers Indices for the Services and Manufacturing sectors will be released on Friday. Services PMI will be particularly interesting as it will provide a measure of sentiment in the UK economy’s dominant sector post Brexit.

EUR The euro strengthened for most of last week, before a crop of strong US data releases and risk-off sentiment from Turkey’s attempted coup saw the single currency sell off significantly on Friday against USD while also taking losses against GBP. No headline euro data will be released today, so ZEW’s widely watched Economic Sentiment survey indexes will kick the week of tomorrow.

USD After selling off gently throughout the week, USD saw a burst of strength on Friday after some strong data releases and safe haven flows triggered by Turkey’s attempted coup. This morning risk currencies such as ZAR and even the Turkish Lira have recovered some of the ground lost on Friday, although USDTRY remains some 2% above the levels seen on Friday before the coup attempt. Friday’s US data releases were exceptionally strong, with both Consumer Price Index data and Retail sales smashing expectations. Core CPI, which excludes fuel and other volatile items, rose 2.3% year on year, well above the Fed’s 2% target. Although fixed income markets did see yields rise on Friday, markets continue to under-price the prospect of rate hikes from the Federal Reserve, especially in light of Friday’s strong releases. No truly headline data releases are scheduled this week for USD, although the NAHB Housing Market Index will be released today at 15:00 BST.

CAD The loonie had a great week last week, strengthening around 2% from Monday’s low vs USD to Friday’s high, although it has since lost some of last week’s gains after Friday’s events. Manufacturing Sales data released on Friday showed sales contracting sharply in May, erasing April’s gains. Today at 13:30 BST Foreign Securities Purchases data will be released, and later in the week monthly Retail Sales and Inflation data will be released on Friday.

UK News

  • FT. Brexit worse than 2008 for finance chiefs, study finds. Businesses desperate for direction on negotiations with Brussels, says Deloitte research. Revenue expectations, investment and hiring plans have fallen sharply since the vote to leave the EU, with chief financial officers more pessimistic than they were after the 2008 collapse of Lehman Brothers.
  • FT. Task of delivering Brexit causes turf wars in Whitehall. Civil service is being restructured to deliver a breakaway from the EU. Since the June 23 referendum, Britain’s top mandarins have begun recasting the way the civil service is structured in order to “deliver Brexit”. This process has been accelerated by the advent of the new government and the creation or recasting of several key ministries.
  • Reuters. Asking prices for UK houses slip slightly after Brexit vote – Rightmove. Asking prices for British residential property slipped slightly more than usual after last month’s vote to leave the European Union, though the overall impact remains hard to judge, figures from property website Rightmove showed on Monday.