Morning Report: 24 March 2016

24th March 2016 By: Ranko Berich

GBP Sterling continued to weaken yesterday, as Brexit risk and soft inflation data continued to weigh on the currency, despite the fact no new data were released. Pricing in short dated sterling options indicated that implied volatility was skyrocketing, as traders and investors sought protection from potential downside moves. This morning has already seen the release of monthly Retail Sales data, which showed that sales had contracted by less than initially expected after last month’s impressive 2.3% spike. Including automobiles sales were up an also impressive 3.8% in February alone. Later in the morning at 11:00 GMT another measure of consumer appetite, the Confederation of British Industry’s Realised Sales index, will be released.

EUR The euro has been on a gentle but remarkably consistent downwards trend against the US dollar this week, while strengthening against sterling. Jens Weidmann, head of the Bundesbank and a notable opponent of the European Central Bank’s recent foray into extreme monetary easing, confirmed his reputation as the most high profile dissenter among the bank’s decision makers in a speech. Although Weidmann accepted the fact the ECB needed to act to raise inflation, he believed that the measures recently taken were too far, and that some flexibility should have been applied to the time frame inflation is allowed to increase. This morning has already seen the release of German Import Prices, which yet again shrunk sharply, and GfK Consumer Climate, which showed consumer confidence basically flat compared to last month. At 10:15 GMT the ECB will announce the loan allocations for its new and improved Targeted Long Term Refinancing Operation, an effort to increase lending to the banking sector at exceptionally low long term rates.

USD The greenback maintained its advance yesterday and this morning, amid bullish comments from US Federal Reserve officials who see increasing possibilities for a rate hike in the first half of the year. The Fed’s James Bullard joined Lockhart and Williams’ as the latest Fed member to make hawkish statements this week, saying that “there was a credible case to move [interest rates] in March; we didn’t do it, so now we can look to April…”. The dollar rallied the most in a month and markets are starting to price in higher probabilities of an interest rate hike through the Fed funds futures. Today at 13:30 GMT, Durable Goods Orders data will be released for February, alongside weekly Unemployment Claims.

CAD The loonie fell yesterday the most in the last two months as crude oil prices saw their biggest fall in the last month following the release of North American crude oil inventories data. North American inventories soared, suggesting the current supply glut is far from over and further difficulties could be ahead for crude.

UK News

  • Bloomberg. London’s finance industry would “flourish mightily” if Britain votes to leave the European Union in the referendum on June 23, Mayor Boris Johnson told lawmakers. Citing discussions with unidentified senior bankers, Johnson, a leading opponent of Prime Minister David Cameron’s campaign to keep the U.K. in the 28-nation bloc, said support for staying in the EU is “shallow” among business leaders.
  • Bloomberg. Bullard Sees Case for April Hike as Inflation Set to Pick Up. Federal Reserve Bank of St. Louis President James Bullard said policy makers should consider raising interest rates at their next meeting amid a broadly unchanged economic outlook and prospects of inflation and unemployment exceeding targets.