Morning Report: 19 April 2016

19th April 2016 By: Ranko Berich

GBP Sterling had a good day yesterday, strengthening versus both USD and EUR amid dramatic moves in crude oil markets. George Osborne dived headfirst into the Brexit debate, as the Treasury released its own report on the potential consequences of Brexit. Leave campaigners were quick to attack the Chancellor for campaigning in favour of the government’s pro-EU position, and political mudslinging is likely to continue throughout the week. Bank of England Governor Mark Carney is likely to once again be pulled into the fray, as he testifies to the House of Lords today at 15:35 BST. Carney’s last testimony, to Parliament’s Treasury Select Committee, became a bloodbath when pro-leave campaigners on the committee dragged the Governor into the Brexit debate and attacked the Bank of England’s impartiality.

EUR The euro weakened to sterling yesterday, consistent with the general “risk on” tone seen across equity and commodity markets, but did manage to strengthen against the US dollar. Data wise it was a slow day yesterday, but this morning at 10:00 BST research company ZEW will release its Economic Sentiment Survey, which tracks optimism among institutional investors and analysts in Germany, as well as the eurozone as a whole. After a dip at the start of the year as investors balked at market turmoil, confidence has recovered in the survey’s most recent readings, and another solid result today could see the euro further supported against USD. The eurozone’s Current Account Balanced will be released before ZEW’s survey, at 09:00 BST.

USD USD is under pressure this morning, selling off against most of the G10, with commodity currencies led by NZD making the biggest inroads. The Federal Reserve’s Bill Dudley made some interesting comments yesterday speaking at a conference, stating that although the economy is going well the Fed “remained cautious”. However, Dudley’s colleague on the rate setting Federal Open Market Committee, Eric Rosengren, was also on the wires overnight with a word of caution for USD bears and those who assume the Fed will be hesitant to hike rates again in 2016. The normally dovish Rosengren expressed concerns that unemployment would fall faster than thought and that the Fed would end up hiking rates by more than expected in the near term future. Today at 13:30 BST, monthly Building Permits and Housing Starts data will be released.

CAD The loonie was taken for a wild ride by oil prices yesterday, initially opening more than 1% weaker on weekend news that OPEC talks to support oil prices had failed to reach an agreement. However, as crude oil prices quickly began to recover in the wake of the failed talked, so did the loonie, ultimately recovering all of its losses. Crude oil’s resilience in the face of political circumstances is somewhat puzzling. This weekend’s talks collapsed because Saudi Arabia was unwilling to participate in action to support prices unless Iran was willing to regulate its own output. The Islamic republic has repeatedly said it will seek to recapture market share lost during the sanctions period, leaving the two major producers at loggerheads. With supply seemingly set to continue to increase, the current rally in crude oil prices- and therefore CAD- remains far from secure. Today at 16:00 GMT, Bank of Canada Governor Stephen Poloz will speak in Ottawa.

UK News

  • BBC. George Osborne defends Treasury’s gloomy EU exit forecast. Chancellor George Osborne has defended claims an EU exit would cost households an average £4,300 a year – after Leave campaigners said it was “absurd”.
  • Reuters. Rental property prices dip as tax hits, overall prices up. Asking prices for rental properties in England and Wales have fallen, hit by the introduction of a new tax, but prices in the housing market as a whole have continued their rise, online property listings firm Rightmove said.