Morning Report: 2 April 2015

2nd April 2015 By: Ranko Berich

GBP Volatility dominated sterling markets yesterday, and although GBP saw large intraday swings, there was little difference between open and closing prices against EUR and USD. The Office for National Statistics reported that productivity, or output per unit hour worked, had grown at its slowest pace during this government than any other since the Second World War. Productivity actually decreased by 0.2% in the third quarter of 2014, essentially showing an “absence of productivity growth in the seven years since 2007 that is unprecedented in the post-war period”. Productivity is crucial to the health of an economy because increases in real wages are directly linked to productivity. Put simply, if the economy is not becoming more productive increases in material wellbeing are likely to be limited and driven primarily by additional workers entering the labour force, and workers working longer hours. This weak productivity was partly driven by an increase in the total hours worked in the economy, due to the large decrease in unemployment that has recently been seen. Labour was quick to jump on the figures for political purposes, but the data do have implications for sterling, because they are deeply concerning for the long term health of the economy. More encouraging data was also released yesterday; the Manufacturing Purchasing Managers Index rose to a level indicating solid growth and confidence in the sector. Today at 09:30 BST, the Purchasing Managers Index for the construction sector will be released.

USD A note of caution crept into USD trading yesterday, given the recently soft tone of data and the fact that Q1 2015 was one of the strongest quarters on record for the greenback. Automatic Data Processing released its monthly estimate of Non-Farm Payrolls. The report fell well short of expectations, estimating the creation of 189,000 jobs in February versus forecasts of over 225,000. Tomorrow’s official Payrolls report remains the one to watch, but yesterday’s miss took its toll on the dollar. Manufacturing Purchasing Managers Indices from Markit and ISM showed different trends; with Markit’s survey showing increasing optimism and ISM’s showing the opposite. Today at 13:30 BST, Trade Balance data will be released together with weekly Unemployment Claims, followed by a speech from Federal Reserve Chair Janet Yellen at 13:40 and Factory orders at 15:00.

EUR The euro continued to show signs of strength yesterday, and this morning has mounted a solid rally against USD. Spanish, Italian and European Manufacturing Purchasing Managers Indices all showed encouraging performance in the sector, showing that the ECB’s quantitative easing is performing as advertised and raising business confidence. Today at 12:30 BST Meeting Accounts from the last European Central Bank Monetary Policy Committee meeting will be released.

CAD CAD recovered from Tuesday’s bout of weakness somewhat yesterday, but remains on shaky ground against USD. Today at 13:30 BST, Trade Balance data for February will be released, and markets will be looking for some improvement in Canada’s deficit, due to the weaker loonie and stronger demand in the United States.

UK News

  • FT. UK manufacturing activity heads higher: The UK’s shrivelled manufacturing industry continued its recovery in March, according to a closely-watched survey.
  • Reuters. Over 100 business bosses back Conservatives ahead of election: Over 100 British company bosses publicly backed Prime Minister David Cameron’s Conservative-led government on Wednesdayand warned a change of course for Britain’s economy under a Labour government would put the recovery at risk.
  • Reuters. UK’s sluggish productivity worsened in late 2014: British economic productivity fell in the last three months of 2014 and remains well below its pre-financial crisis level, underscoring the challenge of making the country’s recovery sustainable in the long term.