Morning Report: 2 September 2015

2nd September 2015 By: Ranko Berich

GBP Sterling at first looked like rallying during the early hours of yesterday morning, but quickly fell to pieces as the trading session unfolded, reaching fresh lows against both USD and EUR. Poor data from the manufacturing sector further reinforced the bearish mood on sterling. Markit’s Manufacturing Purchasing Managers Index remained barely in growth territory, as weak external demand and sterling’s long appreciation over the last couple of years have weighed on the sector. The most concerning aspect of the survey was the fact that respondents reported a decrease in hiring, ending a two month spell of jobs growth in the sector. Money Supply data from the Bank of England contained few surprises, with Net Lending to Individuals expanding steadily, along with Mortgage Approvals. This morning at 09:30 BST, the equivalent index for the Construction Industry will be released.

EUR The euro has been steadily recovering from the lows against USD seen in the closing hours of last week, and yesterday saw another strong session for the single currency. The euro performed particularly well against sterling, reaching its strongest level since last Monday’s chaotic session. Markit released its Manufacturing Purchasing Managers Index results for a number of European countries as well as the eurozone as a whole. There were few surprises: Italy, Germany and Spain saw continued growth, while French manufacturing continued to contract. Unemployment in Spain and Italy fell, as did eurozone unemployment as a whole. The eurozone’s Producer Price Index for July will be released this morning at 10:00 BST.

USD The dollar had a mixed session yesterday, strengthening against sterling and a number of commodity currencies but losing to the euro, yen, and Swiss franc. Eric Rosengren of the Boston Federal Reserve voiced doubts about the outlook for economic growth in the US. Rosengren said recent developments “might suggest a downward revision that is large enough to raise concerns about whether further tightening of labour markets is likely”. If labour markets are not likely to tighten further, the Fed is unlikely to be willing to raise interest rates, for fear of missing its inflation target. Although Rosengren is not a voting member on the interest rate committee this year, and is at the dovish end of the Fed policymakers anyway, his comments were perceived to further lower the already dim prospects for a rate hike in September. Yesterday’s data releases generally supported his scepticism about the outlook for growth: Manufacturing Prices fell, according to a survey by the Institute of Supply Management, while activity in the sector grew at a slower rate, according to the research company’s Purchasing Managers’ index. Consumer Confidence, as measured by TIPP, fell to a 23 month low. This afternoon will also be data rich, with ADP’s estimate of monthly job creation due to be released at 13:15 BST, followed at 13:30 by Non-Farm Productivity and Unit Labour Cost data. Factory Orders and Crude Oil Inventories will then be released at 15:00 and 15:30 respectively.

CAD There was little reprieve for the Canadian dollar yesterday, as crude oil prices once again deteriorated after an impressive rally on Monday. Canadian Gross Domestic Product growth surprised on the upside, with monthly GDP increasing 0.5% in June. Despite the month on month improvement in June, quarterly growth fell into recession for Q2, as the shock from low oil prices worsened. No Canadian data will be released today, but US Crude Oil inventories are scheduled for 15:30 BST.

UK News

  • Reuters. UK factory growth slips, hiring deteriorates in August-PMI: A two-year spell of jobs growth across British factories came to an end last month as manufacturing activity expanded at a slower pace, a survey showed, suggesting the sector is unlikely to boost economic growth much this quarter.
  • Times. UK construction sees longest period of growth in seven-and-a-half years: Activity in UK construction rose again in August, according to a closely-monitored survey, as the sector enjoys its longest period of sustained growth for seven-and-a-half years.