Morning Report: 27 March 2015
27th March 2015 By: Ranko Berich
GBP Conflict, oil, and Greek debt proved a heady mix for markets yesterday, and volatility was once again very high. Some good retail sales data gave sterling a boost yesterday and the currency had a good morning session that extended into the afternoon against the euro but was brutally cut short against a resurgent US dollar. Retail sales in February jumped up 0.7% month on month, significantly stronger than expected. The contraction reported previously was revised upwards to slight growth, so the picture painted by the data is of a confident UK consumer than remains very willing to spend their income. Unsurprisingly, the Confederation of British Industry’s measure of Realized sales in retail stores also jumped up. Today, Bank of England Governor Mark Carney and his Monetary Policy Committee colleague Ben Broadbent will speak at 08:45 and 09:15 GMT respectively.
EUR Even by the standards of recent days the euro had a volatile day yesterday, at first reaching its highest point against the dollar in several weeks, before plummeting more than 1.5%. Money supply data for February contained some slightly optimistic data for private loans, which remained 0.1% smaller than a year ago. However, this in an improvement from last month, and in October the contraction was more than 1% year on year. Earlier this morning, German Import prices were reported to have risen 1.4% in February, consistent with the euro depreciation recently seen. Today at 10:15 GMT, Italian Retail Sales data will be released.
USD The United States dollar was at the centre of yesterday’s volatility, first weakening in the morning before rallying powerfully in the afternoon. Yesterday’s weekly Unemployment Claims were reasonably low at just 282,000. The dollar’s strength was triggered by comments from the Federal Open Market Committee’s Dennis Lockhart, who said in interviews that the US economy was ready for higher rates and was looking for a “lift off” in US rates this year. This should have come as no surprise given that recent FOMC messaging has made this abundantly clear, but the sentiment was enough to reverse the dollar’s recent down trend. Today at 10:30 GMT, Lockhart’s FOMC colleague Stanley Fischer will speak in Frankfurt. Later in the day the final revision of Gross Domestic Product Growth in Q4 2014 will be released at 14:00, and Fed Chair Janet Yellen will speak at 19:45.
CAD CAD performed well yesterday and did manage to mount some resistance to the dollar’s mid-afternoon resurgence, mainly due to a rally in crude oil prices over conflict fears in the Middle East. However, the most significant event yesterday was a speech by Bank of Canada Governor, Stephen Poloz. The BoC have been roundly criticized by both Bay Street and Wall Street in light of the shock interest rate cut at the BoC’s most recent meeting. Markets have been accustomed to the practice of “forward guidance” by the world’s major central banks over recent years, where policy-makers prepare markets for prospective policy decisions well in advance of any official policy change. However, Poloz stated that forward guidance is a practice that should only be used in “extraordinary” market conditions, and that a central banks job was to focus on low, stable inflation and economic growth, not on calm markets. In essence, therefore, Poloz has opened the door to further surprise policy moves in future, which will significantly increase volatility on the Canadian dollar in the run up to BoC rate decisions over coming months.
FT. UK retail sales rise as high street prices fall: Britons went on a shopping spree last month as prices on the high street fell by the most on record, dispelling fears the UK is on the brink of a deflationary downward spiral.
FT. Bank of England warns about financial stability threats: The Bank of England has warned that international factors including the debt crisis in Greece and China’s slowdown pose a significant risk to the UK’s financial system.
Reuters. UK house price growth slows again in March – Nationwide: British house prices rose in March by the smallest annual amount since September 2013, figures from mortgage lender Nationwide showed on Friday, adding to signs the country’s housing market is cooling.