Morning Report: 23 October 2015

23rd October 2015 By: Ranko Berich

GBP Yesterday’s dramatic central bank events in Europe had some effect on sterling, which weakened against USD but made progress against the euro. Retail Sales data for September smashed expectations, showing a whopping 1.9% increase in total retail sales. Some of this is attributable to spending from the Rugby World Cup, but the increases were broad based, suggesting consumer spending had picked up in general. World Cup tourists, for example, could hardly have contributed to the strong increase in homeware store sales. The feel good result has some wider implications. If retail prices finally begin to rise, implications for monetary policy and sterling will not be far behind.

EUR The “Draghi effect” was on full display on all euro crosses yesterday, as the single currency sold off massively after the more-than-expected dovishness from the president of the ECB. Although Draghi did not announce more monetary easing, he sent an unambiguous signal to the markets: they are extremely concerned about the risks undergoing in the Eurozone, and they have even discussed decreases in repo rates. This highlights the anxiety within the ECB. As a result of an extremely dovish press conference, global equities have rallied, government bond yields have collapsed, with German 2 year yields reaching a new record low at -32bp, and the euro was shattered reaching a 2 month low, a level not seen since before August’s crisis. While the markets digest yesterday’s blast of information, Markit will release its Manufacturing and Services Purchase Manager Indices for France and Germany, culminating in the reading for the whole Eurozone at 9.00 BST.

USD The dollar obviously benefited from the ECB’s press conference dovishness against the euro and other European currencies such as NOK, CHF and SEK. However, it fell short versus the dollar bloc plunging against NZD, AUD and CAD. JPY also moved higher against the greenback. As a result, yesterday we had mixed signals from the US: weekly Initial Job Claims hit a new multi decade low in the reaching only 259.000 claims, and dropping the 4 weeks average to another record low of 271.000; on the other side, good news from China seem to indicate that monetary stimulus may be working, as house prices continue its upward trend, which may potentially benefit commodity currencies such as AUD and NZD, and also JPY. Today is a rather slow one in terms of data, with the release of Markit’s Manufacturing Purchase Manager Index at 14.45 BST.

CAD The “loonie” moved higher yesterday against most of the currencies of the G10, with the exception of NZD and AUD. CAD benefited from an unexpected jump in retail sales, which beat estimates with a whopping 0.5%, implying that the depreciation of the Canadian dollar during the last months may be helping to push domestic demand. Today, the Canadian week culminates with the release of the Consumer Price Index, both headline and core readings, at 13.30 BST.

UK News

  • FT. Treasury proposes tighter tax rules on interest and patents: Proposals to tighten key aspects of Britain’s business-friendly tax regime — the treatment of interest and patents — were put forward by the Treasury on Thursday.
  • Daily Mail. Housing market fears sends shares across the industry plummeting: Fears over the health of the housing market sent shares across all areas of the industry tumbling yesterday – although property website Zoopla bucked the trend.
  • Guardian. UK retail sales boosted by falling prices and Rugby World Cup: September figures rose at fastest monthly rate for nearly two years, ONS says, as shops prepare for Black Friday.