Morning Report: 22 September 2015

22nd September 2015 By: Ranko Berich

GBP Viewed in the context of last week’s volatility, yesterday’s moves on GBPUSD seemed rather lacklustre, but sterling did lose some ground to USD. Action against the euro was more impressive, with GBPEUR continuing to rise after Friday’s gains. House prices according to mortgage lender Rightmove began to expand again in September, rising 0.9% after contracting by almost as much in August. Today, the Confederation of British Industry will release its Industrial Order Expectations data at 11:00 BST.

EUR The euro continued to weaken yesterday, as poor German producer price data cast further doubts on the outlook for inflation. Input prices paid by producers fell 0.5% in August, after months of low, flat, or negative growth. Producer prices are a direct leading indicator of consumer prices, and the European Central Bank has recently indicated it stands ready to expand its Quantitative Easing programme if necessary, so if data like yesterday’s becomes a trend further euro weakness is likely to ensure. The ECB’s Peter Praet yesterday reinforced this point in a newspaper interview, signalling “readiness and decisiveness” on the Bank’s part to act in necessary.

USD The dollar was broadly stronger overnight and yesterday, further suggesting that last week’s dovish FOMC conference did not change any fundamental assumptions about the US economy or monetary policy. The Federal Reserve’s Dennis Lockhart underlined this point in a speech yesterday, saying that the much-used phrase “later this year” was “still operative”, for him at least. He explained last week’s hold on rate hikes as a case of “prudent risk management around recent and current market volatility”, implying that if no further shocks emerge to the global economy, the Fed remained on track for rate hikes this year. In the meantime, Existing Home Sales fell to an annualised 5.31 million in August, down from the bumper July figures. Today at 14:00 BST, the House Price Index will be released, followed at 15:00 by the Richmond Manufacturing Index. Lockhart will continue his speaking offensive with another address at 23:30 BST.

CAD CAD began to weaken again yesterday afternoon as USD strength picked up momentum. Wholesale sales changed 0.0% in in July, less than expected, but still somewhat positive after the 1.3% spike seen in June. The Bank of Canada’s Governor, Stephen Poloz, spoke on the economy and the commodity cycle, arguing that Canada’s economy can adapt to lower commodity prices. “Canada has seen this movie before”, Poloz said, saying that although adjustments to lower prices would be “difficult and painful”, Canada’s floating currency would absorb some of the shocks by depreciating. The implication was clear- any undue currency appreciation would be taken very seriously by the BoC, even if the loonie is not an explicit policy target.

UK News

  • Reuters. BoE’s Cunliffe sees scant sign of inflation pressure in UK: Prices pressures are not building up in Britain, but the next interest rate move from the Bank of England is still likely to be up, its deputy governor Jon Cunliffe said in a newspaper interview published on Monday.
  • Reuters. English house prices see biggest September jump since 2002: Asking prices for houses in England and Wales saw their biggest rise in the month to mid-September for 13 years as cheap borrowing and a lack of properties on the market led to market “extremes”, property website Rightmove said on Monday.
  • Telegraph. More than 90pc of us pay more taxes than we’ll ever get back in welfare, says IFS: Think tank recommends that politicians focus more on helping those in-work than out of it.
  • Daily Mail. Bank of England Governor Mark Carney warns of the debt-fuelled threat posed by China to the global economy: The Governor of the Bank of England has warned of the threat posed by China to the global economy – arguing its rapid growth since the financial crisis has been fuelled by debt.