Morning Report: 23 September 2015

23rd September 2015 By: Ranko Berich

GBP Sterling has had a bad 24 hours, beginning with yesterday’s larger than expected government borrowing figures. Public Sector Net Borrowing soared in August, creating the largest budget deficit for the month since 2012, as spending exceeded revenue by 12.1 billion pounds. The Office for National Statistics did say that the figures should be taken with a grain of salt, due to monthly distortions created by self-assessed income tax, but the release sent sterling into a funk from which it has yet to recover. Poor results in the Confederation of British Industry’s Industrial Order Expectations survey compounded sterling’s problems. The index tracking survey responses fell to -7, its fifth month of indicating lower expected volumes for industrial production. Reports also emerged yesterday of weak demand of UK government debt, raising the prospects of a failed gilt sale and ensuing volatility. Today at 17:00 BST, the Bank of England’s Ben Broadbent will speak on the labour market, in London.

EUR The euro has formed a solid downwards trend against USD this week, and yesterday saw consistent losses to the greenback. Consumer Confidence figures released by Eurostat showed negative but generally stable sentiment among the surveyed consumers. This morning’s euro data features releases from survey firm Markit, as results for its Purchasing Managers Index surveys are released for Services and Manufacturing sectors in France, Germany, and the eurozone as a whole. France and Germany’s figures showed fairly solid expansion across both sectors, with the French manufacturing sector finally switching back into growth mode after months of contraction. European Central Bank President Mario Draghi will speak today at 14:00 BST, testifying to the European parliament on monetary policy.

USD The dollar continued to build up steam yesterday, making impressive progress against both sterling and the euro. Overnight, some weak Chinese data in the form of the Caixin Manufacturing PMI has seen USD make further gains, particularly against the Australian and New Zealand dollars in particular. Yesterday showed further expansion in house prices, with the official House Price Index rising 0.6% in July, while more mad news emerged from the Manufacturing Sector. The Richmond Fed’s Manufacturing Index fell to -5, a very bearish sign for manufacturing in the Richmond Federal Reserve area. Today, Crude Oil Inventories will be released at 15:30 BST.

CAD CAD’s steady deterioration took it to new lows for the week against USD yesterday, which were tested this morning in the wake of weak Chinese manufacturing data. Today at 13:30 BST Retail Sales data will be released, and the 15:30release of Crude Oil Inventories in the United States may have an impact on CAD due to its effect on crude oil prices.

UK News

  • FT. Regions face threat of job losses from ‘living wage’: The steep rise in the minimum wage could widen the disparity between the fortunes of London and the rest of the country because the higher rate is less likely to cause any job losses in the capital, a think-tank said on Wednesday.
  • Daily Mail. Flats grow in value faster than all other properties: Average price increase of 60% over ten years is equivalent to £730 a month: Flats have increased in value over the last decade by more than all other types of property, with a massive 60 per cent price rise.
  • Daily Mail. Household disposable income up £18 per week thanks to lower petrol prices, food and drink costs: Households in the UK had an average of £191 to spend each week in August, up by an extra £18 or 10.7% on the same week last year, according to new data.
  • Reuters. UK budget deficit widens unexpectedly, factory orders fall: Britain’s public finances deteriorated unexpectedly last month, recording their worst August in three years, and a decline in industrial orders signalled that a global slowdown is hitting the country’s economy.
  • Reuters. UK manufacturing stalls in September, outlook weak – CBI: British manufacturing output failed to expand in the three months to September for the first time since early 2013, adding to signs of a slowing in the country’s economy, an industry survey showed on Tuesday.
  • Guardian. UK deficit rises steeply after surprise fall in tax receipts: Chancellor under pressure ahead of spending cuts review as higher Whitehall spending and a dip in self-assessment revenue boost deficit.