Morning Report: 22 October 2015

22nd October 2015 By: Ranko Berich

GBP Sterling drifted slightly lower against both EUR and USD yesterday, as little fundamental data was released and most news stories revolved around politics. Mark Carney waded into the political fray, giving a speech in Oxford on the prospects of the UK leaving the European Union. The Bank of England Governor said that EU membership had benefitted the british economy in a variety of ways, but also emphasized that EU regulators had to consider non-euro members when drafting regulation, which had become burdensome and inflexible in certain areas. The examples Carney gave were the bonus cap for bankers, which restricts bank’s ability to claw back compensation, and so actually reduces regulators abilities to discourage risk taking and law breaking. This morning at 09:30 BST, Retail Sales data for September will be released and is expected by analysts to continue to show robust growth, after a decent report last month.

EUR After reaching an impressive high against USD last week, the euro has been consolidating downwards this week, and the trend has continued this morning. It’s a big day for the euro, with the European Central Bank due to announce its latest rate decision at 12:45 BST, followed at 13:30 by a Press Conference given by President Mario Draghi. Draghi is in an interesting position: the latest data indicate that the eurozone’s credit market is improving, and businesses are finding it easier to access lending, which is a solid indication that its current monetary easing measures are working. On the other hand, producer prices in the German economy are deteriorating rapidly, energy prices are holding down inflation in general, and the global outlook is looking increasingly uncertain. Under such circumstances, markets will be eagerly looking for any hints of additional easing, despite the fact several ECB Governing Council Members have recently said it’s too early for such measures.

USD The US dollar has shown some life of late against both sterling and the euro, but remains substantially weaker against both when compared to the beginning of the month. Yesterday’s Crude Oil Inventories data showed a continuing supply glut in the North American market, with stockpiles rising by a whopping 8 million barrels, the fourth consecutive week of inventory accumulation. The development does not bode well for crude oil prices, which continue their downwards trend yesterday. Today at 13:30 BST weekly Initial Jobless Claims will be released, after last week’s data showed the joint lowest number of claims since 1973. Later in the afternoon, the House Price Index will be released at 14:00, followed an hour later by Existing Home Sales and the Conference Board’s Leading Index.

CAD Rates stayed the same, and the Bank of Canada’s Monetary Policy Report and Press Conference contained few hints of additional easing, and yet the Loonie did weaken significantly after yesterday’s central bank events. The Bank did trim its expectations of economic growth in Canada, saying that it only expected 2% growth in 2016 as opposed to the 2.5% forecast previously. The 1% forecast for 2015 remained intact. In the press conference following the rate announcement, BOC Governor Stephen Poloz declined to pass judgement on the newly elected Government’s plans for infrastructure spending, but remained upbeat about the prospects for the US economy, which is a crucial source of external demand for Canada. Today at 13:30 BST, Retail Sales data will be released.

UK News

  • FT. Carney backs Britain’s membership of reformed EU: Bank of England governor Mark Carney supported Britain’s EU membership in a major speech on Wednesday, highlighting its economic benefits while calling for reforms to ensure the union still works in Britain’s interests in future.
  • FT. Watchdog tells banks to work harder for customers: Banks in the UK will be forced to guide customers to rival current accounts in an attempt to stoke competition, but will not have to abandon free banking for people in credit or face being broken up.
  • Reuters. UK public finances improve but Osborne faces challenge to hit targets: Chancellor George Osborne still faces a challenge to hit his target for cutting the budget deficit this year, despite a stronger-than-expected improvement in September.
  • Reuters. Fewer UK households expect rate rise in next six months: Barely one in three British households expect the Bank of England to raise interest rates in the next six months, down from nearly half two months ago.