Morning Report: 21 April 2016

21st April 2016 By: Ranko Berich

GBP Sterling drifted slightly lower yesterday against USD, but continued its rally against the euro. Brexit continued to dominate the news agenda, with Dominic Cummings, Chief Executive of the Leave campaign appearing before Parliament’s Treasury Select Committee for a bruising testimony session. Cummings aggressively put forth the case for leaving the European Union, and attacked the Confederation of British Industry for releasing what he said were “dodgy” pro-EU surveys of its membership. When pressed by lawmakers, Cummings could not produce a single survey of businesses that showed a majority in favour of Brexit. Earlier in the day the latest Labour Market data from the UK showed the unemployment rate steady, while wage growth continued to slow to just 1.8% year on year. Today at 09:30 GMT monthly Retail Sales data will be released.

EUR Yesterday was rather uneventful for the euro, which lost ground slightly to GBP and USD ahead of today’s important rate announcement and Press Conference from the European Central Bank. The ECB is extremely unlikely to adjust monetary policy at today’s meeting, because of how aggressive and comprehensive last month’s easing actions were. The ECB cut rates, announced new long term lending and expanded the size and composition of quantitative easing at last month’s meeting. However, the euro strengthened in the wake of the announcements after ECB President Mario Draghi appeared to rule out any further easing measures, saying they were “not envisaged”. Even if the ECB was indeed unlikely to loosen policy again, ruling the possibility out seemed like a counterproductive move considering the euro strength that resulted. Today’s meeting will therefore be about how Draghi deals with his verbal blunder from last month, and if the EBC president risks losing credibility by walking back his statement, or doubles down and risks euro strength. The ECB will announce its latest interest rate decisions at 12:45 BST, followed at 13:30 GMT by a Press Conference.

USD USD generally fared well yesterday, posting gains versus most of the G10 and only experiencing a slight pullback overnight. US treasury yields were up across the middle and back end of the curve, suggesting slightly more confidence among investors in medium and long term growth. Existing Home Sales came out well above expectations, while weekly Crude Oil inventories continued to rise. Today at 13:30 BST the Philly Fed Manufacturing Index will be released alongside weekly Unemployment Claims, followed at 14:00 by the House Price Index and at 15:00 by the Conference Board’s Leading Index. Of these releases, the survey-based Philly Fed Manufacturing Index is perhaps the most interesting after last month’s release showed sentiment improving after months of deterioration.

CAD The loonie strengthened yet again yesterday, despite the latest monthly Wholesale Sales data showing a 2.2% plunge in February. Crude oil prices shrugged off news that weekly Crude Oil Inventories in the United States continued to rise to post fresh highs for the year, driving the loonie up. Equally, news that Kuwaiti oil workers had ended their strike had little impact on the bull market in crude.

UK News

  • BBC. UK economy ‘could be 6% smaller’ after EU exit, warns Treasury. The 200-page report says the size of the cut in gross domestic product would be the equivalent of about £4,300 a year for every household.
  • FT. Wolfgang Schäuble warns UK of tough Brexit negotiations. Wolfgang Schäuble, Germany’s finance minister, has warned British chancellor George Osborne that Berlin would be a tough negotiator if the UK votes to leave the EU.
  • Reuters. UK 2015/16 public borrowing overshoots target, March retail sales slide. Retail sales volumes dropped 1.3 percent on the month in March, a bigger fall than any of the forecasts by economists in a Reuters poll released this week and matching a decline in December which was the biggest since January 2014.