Morning Report: 24 August 2015

24th August 2015 By: Ranko Berich

GBP The UK has woken up to chaos in global financial markets this morning, which have seen another rout in Chinese equity markets and a fresh wave of selling across emerging markets, with crude oil prices also having plummeted. Sterling itself is out of the limelight, but the resultant rise in EURUSD has, with GBPUSD remaining fairly stable, translated in to another drop in GBPEUR, which has now fallen over 5% since its August 5th peak. This week will be very light on UK data releases, meaning sterling headlines are likely to be few and far between. Friday will see the release of the second estimate of Gross Domestic Product growth for the second quarter, accompanied by investment statistics and the Index of services, but aside from that the working week will be a quiet affair for UK data.

EUR Amid global market turmoil the euro appears to have benefitted significantly as a relative safe haven, and has strengthened against both GBP and USD over the last couple of sessions. This is an extraordinary state of affairs considering that the political instability that has weighed on the single currency is not necessarily over. Friday’s Purchasing Managers Indices showed the services and manufacturing sectors generally growing at a slow but satisfactory rate across the eurozone, with the exception of the still contracting French Manufacturing sector. No data will be released today, but tomorrow morning German Gross Domestic Product data will be followed by the German IFO Business Climate Survey. Later in the week, European Central Bank Money Supply data will be released on Thursday morning, followed by German and Spanish inflation statistics on Friday.

USD The dollar’s two-track performance continued in early trading last night and this morning, with the greenback benefitting against emerging market currencies but weakening noticeably against the euro. Considering US 10 year treasuries are currently trading at less than two percent yield, much of USD’s weakness may be due to the fact that significant doubts have been cast on the prospects for early rate hikes from the US Federal Reserve. With commodity prices plummeting and headline inflation still stagnant, it would take a brave Fed to begin hiking interest rates, and yet this is what the latest Fed communication seems to indicate. This week’s Fed Symposium at Jackson Hole, Missouri, will see a number of speakers from the central bank, giving markets an opportunity to gauge just how bullish the rate-setting Federal Open Markets Committee will be. The Symposium begins on Thursday, but the Fed’s chair Janet Yellen will be absent. The week’s main data releases will be Durable Goods orders on Wednesday, and Gross Domestic Product growth on Thursday.

CAD Friday’s Retail Sales data may have been surprisingly good, but the continued slaughter in crude oil markets has seen the loonie fall to fresh multi-year lows against USD. Core Retail sales were up a whopping 0.8% for the second month running, showing the Canadian consumer was making the most of the cheap credit currently on offer due to the Bank of Canada’s loose monetary policy. In the meantime, crude oil markets were a wasteland: Brent crude has surpassed its lows from January to reach a low of $44.00 this morning, and with reports emerging of planned Iranian production increases the prospects of a substantial rally seem distant.

UK news

  • FT CBI upgrades UK growth forecast: Britain’s biggest business lobby organisation has upgraded its economic growth forecasts in a bullish call that the UK will sustain a strong recovery in spite of jitters over the global economy.
  • FT Mortgage lenders show sympathy as arrears deals hit record level: Mortgage lenders are suspending or reducing repayments for struggling borrowers in a record proportion of arrears cases, underlining the mood of forbearance amid tighter regulation and low interest rates.
  • Reuters UK employers raise growth outlook, see earlier BoE rate move: Britain’s economy will grow more strongly than previously thought this year and in 2016, an industry group said on Monday, as it also brought forward its prediction for the timing of Britain’s first rate hike in over seven years.
  • Telegraph UK manufacturers fear lagging behind global competition: The UK’s lacklustre economic recovery is causing firms to scale back investment, says a survey of manufacturers.
  • Guardian UK income tax receipts reach surplus in July: ONS details £1.3bn gap between revenue and expenditure – the first surplus for three years and the largest since records began in 1997.