Morning Report: 20 July 2016

20th July 2016 By: Ranko Berich

GBP After selling off yesterday, sterling is enjoying a mild boost this morning after a strong batch of labour market data. The official Unemployment Rate fell to 4.9% in May, while Average Weekly Earnings rose a solid 2.3% year on year. As encouraging as the data are, they’re unlikely to prove a game-changer for sterling as they do not reflect the likely shock of Brexit. Yesterday’s inflation data, which was for June and therefore did include a few days of post-Brexit information, was similarly positive. The Core Consumer Price Index, which excludes food and fuel, rose 1.4% year on year, short of the Bank of England’s 2% target but nonetheless an improvement on recent months. House Prices rose 8.1% year on year.

EUR The euro is on the back foot against USD this morning, having falling to its lowest level against the greenback in almost a month. Yesterday’s main data release, the ZEW Economic Sentiment Index, fell well short of expectations for both its Germany specific and eurozone wide versions, indicating falling investor optimism about the eurozone’s immediate economic prospects. Italian bank equities took another hit as the European Court of Justice, the EU’s highest legal authority, ruled that Slovenia’s 2013 “bail in” was legal. The ruling suggests that governments could insist that bank’s creditors could be forced to take losses before eurozone governments engage in taxpayer funded bail outs. Today at 15:00 BST monthly Consumer Confidence survey data for the eurozone as a whole will be released.

USD The weighted USD index DXY has surged to its highest level since March this morning, as strong US data have led investors to reassess previous scepticism about the likelihood of rate increases this year. Monthly Building Permits and Housing Starts rose higher in June, further underlining the robustness of the economy. No headline US data will be released today, apart from weekly Crude Oil inventory data at 15:30.

CAD The loonie has been on the receiving end of the USD strength seen over the last three days, and yesterday was no exception. No Canadian data was released yesterday and this will also be the case today, although Crude Oil inventory data will be released in the United States at 15:30.

UK News

  • FT. Boris Johnson accused of lying and insulting Barack Obama. US journalists give new foreign secretary a grilling. Boris Johnson’s past as a colourful newspaper columnist caught up with him on Tuesday, as US journalists accused him at a Foreign Office press conference of insulting President Barack Obama and telling “outright lies”.
  • Reuters. Income stasis lit fuse for political rocket. Slow growth leaving swathes of the population with no real income gains for another 10 years will foster more disaffection that just bakes in political volatility and economic stagnation.