Morning Report: 26 August 2016

26th August 2016 By: Ranko Berich

GBP Yesterday was reasonably quiet for sterling, as the pound appeared to take a breather and softened slightly after steadily advancing throughout the week. Notably, GBPUSD failed to reach a new high for the week, despite a surge early in the morning. Fundamental data was scarce, with the most interesting release coming from the Confederation of British Industry, which released its Retailing Reported Sales index, which showed reported Retail Sales actually improving slightly in August, after contracting in July. This morning’s data hbas included the second estimate of Gross Domestic Product Growth in the second quarter, which confirmed the economy grew at 0.6%. The Index of Services rose 0.5% in the three months ended June, as did Business Investment, further confirming that the economy maintained strong momentum in the second quarter.

EUR The euro rally against USD began to show signs of old age this week, as EURUSD tried and failed to surpass last week’s on Tuesday. Since then EURUSD has traded sideways, and only drifted slightly higher yesterday while remaining well within the trading range seen recently. Yesterday’s big release was the IFO German Business Climate Survey, which showed reported activity as well as expectations of future business falling among the large sample of businesses. Consumer confidence, however, appears to be holding up in Germany: this morning’s GfK German Consumer Climate Index was basically unchanged in August. Eurozone wide Money Supply data showed Private Loans, the key measure of total lending to the private sector, rising by 1.8% year on year, consistent with the steady improvement in eurozone credit markets.

USD USD traded mostly flat yesterday, drifting slightly lower against the euro while eking out some small gains versus sterling. The lack of action in USD trading this week has been due to anticipation of today’s important speech by Federal Reserve Chair Janet Yellen, at the Fed’s annual symposium at Jackson Hole. Occasionally described as “Davos for central bankers”, Jackson Hole is an opportunity for the Fed to outline its thinking on the key monetary policy issues of the day. With central banks globally easing policy in a desperate attempt to revive inflation, the Fed has demured from raising interest rates this year despite reasonably solid domestic conditions. Yellen has a chance to explain how the Fed will tackle this situation today, as well as possibly hint at the likely path of interest rates. Yellen’s high profile speech will be at 15:00 BST, and will be preceded at 13:30 by Gross Domestic Product and Goods Trade Balance.

CAD The loonie had a rather quiet day yesterday, closing basically flat against USD. Developments in crude oil markets were similarly subdued, with the Brent crude benchmark hovering around the $49 level. The CFIB Business Barometer Index, a survey based business confidence index, remained indicative of high levels of overall optimism. No Canadian data will be released today, but this afternoon’s speech from Janet Yellen has the potential to move global markets, including the loonie.

UK News

  • Reuters. UK consumers recover some confidence after Brexit vote hit. British consumers have regained some of the confidence they lost after the Brexit vote in June, according to a survey published on Friday, the latest sign that households are largely taking the decision to leave the European Union in their stride.
  • FT. Janet Yellen’s Jackson Hole speech: the view from markets. For financial markets, it’s the most keenly anticipated speech of the summer. On Friday, Federal Reserve chair Janet Yellen will address an annual gathering of central bankers in Jackson Hole, Wyoming on the subject of “The Federal Reserve’s Monetary Policy Toolkit.”. The speech comes days after her chief lieutenants Stan Fischer, the Fed vice-chair, and Bill Dudley, who runs the New York Fed, have both indicated that a second rate rise as soon as next month is a possibility.