Morning Report: 24 April 2015

24th April 2015 By: Ranko Berich

GBP Sterling has opened this morning with a bang, after somewhat disappointing retail sales data yesterday. March Retail Sales contracted 0.5% month on month, disappointing expectations for growth. The result is not as bad as it seems: falling petrol sales accounted for the decline, and once these were removed retail sales actually grew a healthy 0.2% month on month. Nonetheless, the fall in total volume (including petrol sales) may have an effect on Q1 GDP figures, when they are released next Tuesday at 09:30 BST. No GBP data will be out today, but sterling’s strong performance over the last week belies the fact that a hung parliament is seeming increasingly inevitable at the moment, meaning that political risk could result in high sterling volatility in the coming weeks.

EUR Today may be another “last chance” for Greek debt negotiations, but markets are shrugging off the risk of a collapse in today’s Eurogroup finance ministers meeting. Greece is of course the main topic of discussion, and with the eurozone member running out of cash the need for more bailout funding is becoming all the more urgent. Greece and its creditors must agree on the reforms that it will undertake in exchange for the next tranche of bailout access, and there are no signs of an agreement yet. Negotiations may turn on if Greece’s creditors are willing to relax the surplus requirements that have been imposed on them; the least defensible demand placed on Greece from an orthodox macroeconomic perspective. Equally, if Greece is unwilling to sacrifice sacred cows such as pensions and rehiring public workers this could prove another major stumbling block. German IFO Business Climate data, out at 09:00 BST, is likely to be lost in the noise around the negotiations but will be relevant nonetheless.

USD The dollar continues to fall back across the board, as crude oil prices spike up towards the highs seen yesterday afternoon. The durability of the crude rally is far from certain, however. Yesterday’s fundamental data was disappointing, as three releases across three categories of data fell short of expectations. Weekly unemployment claims rose slightly, while Manufacturing Purchasing Managers Index data for April showed a fall in survey confidence. New Home Sales also slumped in March, although they did record a seven year high previously.

CAD The crude rally has been like manna from heaven for CAD, which has rallied noticeably on the US dollar. Just how long this rally will last is far from certain. Supply glut persists in the North American market, and OPEC production appears set to soar while an Iranian nuclear deal has the potential to bring a major supplier back in to international markets. No fundamental data will be released today but Bank of Canada Governor Stephen Poloz will speak at 15:50 BST.

UK news

  • FT. Drop in fuel purchases weakens March UK retail sales: UK retail sales fell unexpectedly in March, raising questions about how strong next week’s first-quarter growth figures will be.
  • FT. George Osborne hits UK deficit reduction target for 2014-15: George Osborne has met his deficit reduction target for 2014-15 with new data showing that borrowing fell by more than £10bn in the 12 months to March compared with the same period last year.
  • FT. Annuity rates fall to record lows after sweeping pension reforms: Annuity rates for savers who want to turn their pension money into a secure income have fallen to record lows just weeks after sweeping pension reforms came into force.
  • Telegraph. UK borrowing bill shrinks ahead of election: British coffers are boosted by bumper tax receipts, though leading think-tank warns that Labour plans will add £90bn to Britain’s debt pile by the end of the decade.
  • Reuters. No Bank of England rate rise until early 2016 – Reuters poll: The Bank of England will wait until early 2016 before raising interest rates, but with economic growth forecast to stay steady and inflation below target, even then it is a close call, according to a Reuters poll of economists.