Morning Report: 18 March 2015

18th March 2015 By: Ranko Berich

GBP Sterling edged slightly lower yesterday against the US dollar, ahead of a day of crucial releases today. First up will be UK Labour Market data at 09:30 GMT, including the Unemployment Change, Unemployment Rate and Average Earnings Index. Of these, the Average Earnings Index will be the most closely watched, given the strong upwards trend that has been observed in recent months. Real wage growth, which occurs when wages grow faster than inflation, remains one of the key developments on the Bank of England’s wish list, and a further increase on the 2.1% year on year growth seen last month would be a bullish sign for sterling. The Bank of England’s Official Bank Rate votes will be released at the same time. Later in the day at 12:30 GMT, Chancellor of the Exchequer George Osbourne will present the Government’s Annual Budget. Although some immediate effects on sterling are a possibility, in the medium term it is likely that today’s budget will be more of the same from the Conservative government, and that fiscal conditions will remain tight.

EUR The euro continued to show backbone yesterday, as more surprisingly positive data was released. Inflation data for February showed that headline Consumer Price Index inflation was less negative than in January, as prices fell 0.3% year on year as opposed to 0.6% previously. Once volatile items such as food and fuel were excluded, core CPI inflation was 0.7%, more than expected. Research company ZEW’s Economic Sentiment survey results for March showed confidence among institutional investors and economists in the eurozone soar, with the index tracking survey results rising to 62.4. As recently as October, the index was at 4.1. Little euro data of note will be released today, but the euro zone’s Trade Balance will be out at 10:00 GMT.

USD All eyes will be on the United States dollar today, as the Federal Open Market Committee will release its most crucial monetary policy statement since the end of its Quantitative Easing Programme last year. The Fed has a lot to respond to, between the incredible growth of the US labour market over the last three months, to ongoing questions about productivity growth, and how much of an effect the newly strengthened dollar will have on the economy. However, markets are tuned to one aspect in particular of today’s statement: whether or not the Fed will continue to say that it can afford to be patient in raising interest rates. In recent testimony to lawmakers, Fed Chair Janet Yellen stated that once this language is removed from the FOMC’s forward guidance, rates could rise at any subsequent meeting. The FOMC statement will be released alongside the latest Federal Funds rate at 18:00 GMT, followed by a press conference given by Janet Yellen at 19:30.

CAD Volatility remained high in CAD trading yesterday, but loonie ultimately closed very close to where it opened. Manufacturing Sales fell 1.7% in January, erasing the 1.6% gain seen previously. Petroleum and Coal products led the falls, after recent labour market data showed that the energy sector was shedding jobs. Today at 13:30 GMT, Wholesale Sales data will be released.

UK news

  • Guardian. Osborne pins hopes on £6bn budget windfall to regain momentum in polls: Chancellor lines up final budget of parliament to defuse Labour’s attack on public spending cuts and break opinion poll stalemate.
  • Reuters. British referendum on EU in 2015 unlikely, says PM Cameron: British Prime Minister David Cameron on Tuesday said there was only a “pretty slim” chance that he could bring forward to 2015 a referendum on the country’s membership of the European Union which he wants to hold if he wins a national election in May.
  • Telegraph. Budget 2015: The death of the annual tax return: George Osborne will use the Budget to announce a cut in unnecessary HMRC red tape for millions of people.