Morning Report: 24 August 2016

24th August 2016 By: Ranko Berich

GBP Sterling extended its rally yesterday, as the Bank of England’s bond buying program continued and Industrial Order Expectations were slightly less negative than last month. The Bank of England reported paying a premium on £1.17bn on government debt yesterday, due to tight supply, a symptom of the global hunt for yield that is currently driving investors into traditionally riskier investments. The Confederation of British Industry released its Industrial Order Expectations index yesterday, which registered a reading of -5. This indicates the surveyed businesses are expecting order volumes to fall, but is nonetheless an improvement on the previous survey, which recorded more pessimism overall. This morning’s main release was British Bankers’ Association Mortgage Approvals, which fell to an 18-month low, contradicting previous housing sector figures as lower interest rates should have helped new mortgages to be approved.

EUR EURUSD surged yesterday morning, coming within spitting distance of last week’s high before falling off slightly, as the US dollar remained under pressure and euro data was reasonably firm. Purchasing Managers Indices showed activity across the eurozone expanding at a slightly faster rate, according to the surveyed businesses, but Consumer Confidence figures released by Eurostat showed a deterioration from last month, as consumers remained pessimistic overall about the path of the economy. This morning’s biggest release was the final reading of German Gross Domestic Product in the second quarter, which was confirmed to have risen 0.4% during the quarter.

USD The US dollar remains something of a whipping boy for G10 FX markets this morning, having come under pressure against NOK, SEK, and NZD overnight. Yesterday’s weak data did little to help the situation: manufacturing surveys from the Richmond Federal Reserve and research company Markit were both worse than expected. The Richmond Manufacturing Index unexpectedly fell into contractionary territory, as the surveyed manufacturers reported falls in output. New Home Sales, however, unexpectedly rose to an 8 year high, suggesting this sector of the economy could provide a surprise boost to growth this quarter. Today at 14:00 BST the House Price Index will be released, followed at 15:00 by Existing Home Sales.

CAD The loonie had a brief but spirited rally yesterday, but reversed in the late afternoon as conflicting headlines suggested Iran may or may not participate in any discussions of crude oil production cuts at an upcoming meeting of oil producers. Stockpile data is in focus today for the crude oil market and therefore the loonie, with the release of North American Stockpiles data at 15:30 BST from the US Energy Information Administration.

UK News

  • FT. UK mortgage approvals lowest in 18 months. The number of loans approved for new house purchases fell to its lowest level in 18 months in the first full month after the EU referendum, according to data from the British Bankers’ Association.
  • Reuters. UK manufacturing export orders highest in two years after Brexit vote. Orders for British manufacturing exports hit a two-year peak in August following a Brexit-induced fall in sterling, as the weaker pound also pushed up price expectations to their highest in over a year, a survey showed on Tuesday.