Morning Report: 20 April 2016

20th April 2016 By: Ranko Berich

GBP Sterling continued to appreciate against both USD and EUR yesterday, only stopping its progress late in the afternoon after Bank of England Governor Mark Carney once again underlined the risks of Brexit in testimony to lawmakers. Speaking to the House of Lords Economic Affairs Committee, Carney once again reiterated that although the Bank of England was remaining politically neutral and was not in the business of judging the merits of Brexit, its mandates for financial stability and monetary policy meant that it had to assess the potential economic consequences. In Carney’s view, Brexit would mean a slower rate of growth based on the Bank’s modelling, and increased risks stemming from the UK’s large current account deficit. None of this information was new, and so there was little market impact. This morning has already seen the release of Labour Market data including the Average Earnings Index and Unemployment rate, with unemployment remaining unchanged and Average Earnings growth slowing to1.8% year on year. The BoE’s Ian McCafferty will speak today at 14:00 BST.

EUR The euro continued to strengthen against USD yesterday, extending its gains from Monday and last week while continuing to weaken against sterling. Research group ZEW released its Economic Sentiment survey results for Germany and the eurozone, showing optimism continuing to recover among the institutional investors and analysts surveyed. Today has already seen the release of German Producer Price Index inflation, which was flat in March, and the European Central Bank’s Mario Draghi will speak at 11:00 BST. Considering that there is a full ECB rate announcement and press conference tomorrow, Draghi is likely to avoid rocking the boat and giving any hints regarding monetary policy.

USD USD weakened to sterling and EUR yesterday, but did manage to claw back some of yesterday’s losses to commodity currencies such as NZD and NOK overnight. Building Permits and Housing Starts data for March was below expectations, with both measures falling from February’s levels. Tofay at 15:00 BST Existing Home Sales data will be released.

CAD The loonie continued its relentless advance yesterday, as crude oil prices eked out further gains after Monday’s turmoil. Bank of Canada Governor Stephen Poloz sounded a cautious note on the economy during an appearance before lawmakers, saying it was difficult to assess what impact the newly installed government’s fiscal plans would have on the economy. Poloz went on to say that recent economic data had been “encouraging”, but also “quite variable”, suggesting that the BoC was far from considering a change in monetary policy. Today at 13:30 BST Wholesale Sales data will be released.

UK News

  • BBC. UK Bank governor Carney says is ‘duty’ to speak of Brexit risks. It is the Bank’s duty to talk about EU referendum risks, says Bank of England governor Mark Carney, dismissing accusations the Bank is too political.
  • Reuters. Bank of England’s Carney hits back at critics over EU comments. Bank of England Governor Mark Carney hit back at critics who have accused him of venturing into politics with his comments that a vote to leave the European Union could hurt Britain’s economy, saying it would be political for him to stay silent.