Morning Report: 19 March 2015

19th March 2015 By: Ranko Berich

GBP Sterling had an eventful day yesterday, at first weakening off the back of soft labour market data, before making some impressive gains against USD in the evening. Average Weekly Earnings data showed that the last three months of earnings growth had averaged a 1.8% improvement on the same period a year ago, a slowdown from the 2.1% growth seen previously. The data surprised markets, which were expecting wage growth to accelerate, and sterling immediately suffered. The day was far from over however, and George Osbourne presented the current parliament’s final budget. Strong wage growth remains a key indicator that the Bank of England is likely to want to see before it is willing to signal a move to higher rates, and yesterday’s data puts such a development further away. There were few surprises and sterling was largely unaffected. Essentially, fiscal conditions will remain tight and a few sweeteners were thrown in for the electorate ahead of the general election. No sterling data is released today, but volatility remains high and developments elsewhere will lead GBP trading.

EUR The euro took somewhat of a back seat as UK and US developments led headlines yesterday. It is worth noting, however, that government bond markets once again saw yields fall across the board, suggesting that further euro weakness could be ahead. Today at 09:00 GMT, the European Central Bank’s monthly Economic Bulletin will be released, as European Union leaders meet for an Economic Summit. Greece will once again be the hot topic on the agenda, as leaders continue to attempt to negotiate which reforms the embattled eurozone member will have to undertake in order to be given access to bailout funding. Reports emerged yesterday that Greek ministers had refused to give an update on their progress over teleconference yesterday, in yet another sign of fraying tempers.

USD The last 24 hours really have been a roller coaster for USD, which weakened substantially ahead of yesterday’s Federal Open Market Committee statement and Press Conference. In the wake of the actual event further, dramatic weakness was seen in the dollar, with EURUSD rising a staggering amount between before retracing most of its gains. Continued retracement was seen overnight as the dollar found strength, but volatility remains extraordinarily high this morning. The actual FOMC statement itself removed the word “patient” from its forward guidance, freeing the Fed’s hand to raise rates in the future. However, forecasts for growth and inflation were lowered, and member’s predictions for interest rates in the future were moved downwards. Crucially, the Fed’s estimate of the natural rate of unemployment was also reduced, meaning that the members believe unemployment could be allowed to fall further than previously without increasing inflation. The action will continue for USD today, with weekly Unemployment Claims scheduled for release at 12:30 GMT together with Current Account data for Q4 2014. Later in the afternoon at 14:00 GMT, the Philly Fed Manufacturing Index is out, together with the Conference Board’s Leading Index.

CAD CAD was once again at the mercy of developments in USD yesterday, and strengthened off the back of US monetary policy developments. Wholesale Sales plummeted 3.1% in January, after growing 2.8% in December. Motor Vehicles and Construction sector materials led the losses. No Canadian data will be released today, meaning that momentum, oil prices, and developments elsewhere will direct CAD trading.

UK news

  • FT. Budget 2015: London housing slowdown hits finances: London’s housing market slowdown has hit the public finances, with the tax take forecast from house sales being scaled back £2bn a year.
  • Guardian. Osborne will need unprecedented cuts in welfare to meet targets, says IFS: Thinktank warns that extra £20bn will need to be saved – while protecting pensions – even if austerity targets are relaxed as planned
  • Reuters. Bank of England flags risk of further upward pressure on sterling: Bank of England policymakers see a risk that sterling could strengthen further and leave inflation below target for longer, minutes from their March meeting showed on Wednesday.
  • Daily Mail. Windfall for 95% of struggling savers: Chancellor abolishes tax on first £1k of savings income: Tax on income from savings will be abolished for 17million savers, the Chancellor George Osborne has announced.
  • Daily Mail. Chancellor appeals to squeezed middle as he raises 40p tax threshold by more than inflation for the next two years: George Osborne tilted his Budget at the ‘squeezed middle’ today with above-inflation hikes for the threshold at which workers start paying the 40p higher income tax rate.