Morning Report: 28 August 2015

28th August 2015 By: Ranko Berich

GBP The recovery in global risk appetite continued yesterday, triggering broad USD strength versus several G10 currencies, including sterling. Research company GDK released its Consumer Confidence index for the UK, which rose to 7, reflecting a modest increase in consumer’s willingness to spend and optimism about the economy. Today will be a far more important day for sterling, due to the release of the Second Estimate of Gross Domestic Product Growth in the second quarter of 2015. The first release of GDP showed the economy growing at a steady 0.7% quarter on quarter, or 2.8% annual rate. In addition to GDP, the 09:30 BST release from the ONS will also include activity indices for Services and Business Investment, which represent, respectively, the biggest primary driver of the economy and the key contributor to sustainable long term growth.

EUR Yesterday saw the euro sell off, as the US dollar in particular gained momentum. Nonetheless, one of the strongest recent euro data prints was seen, as European Central Bank Money Supply data showed lending to the private sector growing at 0.9% year on year, up from 0.2% previously. This is exactly the mechanism by which the ECB’s quantitative easing programme is supposed to improve conditions in the eurozone, as lending to the private sector increases, this results in an improvement in demand and finally a pick up in inflation. To put this month’s data in perspective, August 2014’s release showed lending contracting by 1.6%. Although this is a good sign of green shoots for the eurozone’s economy, it may be some time before it means anything for the euro, where asset yields are likely to remain at historic lows for some time. This morning, German Consumer Price Index data will be released on a regional basis, culminating with German CPI at 13:30 BST.

USD Strong GDP data for the second quarter was only the icing on the cake for USD yesterday, which regained lost ground against sterling and the euro. Commodity linked currencies such as NOK, CAD, NZD and AUD did manage to claw back some of their sharp recent losses. The second revision of Gross Domestic Product growth in the second quarter showed growth at a whopping annualised rate of 3.7%, revised upwards from 2.3% at the first reading and smashing expectations which were around 3%. The data shows the US economy gaining momentum despite USD’s broad strength. Surprisingly, even exports managed to grow, despite readings of doom and gloom in the US manufacturing sector. All in all the Federal Reserve could hardly have asked for more from yesterday’s data, but the question now is how this month’s market volatility will affect the outlook for monetary policy, and therefore USD.

CAD The Canadian dollar benefitted yesterday and this morning from a strong recovery in crude oil. Crude benchmarks extended the modest gains seen over the course of Monday and Tuesday into a decent rally with WTI trading at around $42.70 at the time of writing. Corporate profits in Canada surged 12.9% in June according to official data from Statistics Canada. Today at 13:30 BST, price indices for Raw Materials and Industrial Products will be released.

UK News

  • FT. House price growth slows in August: The pace of UK house price growth slowed in August, but experts warn prices could start to rise steeply again unless the number of properties on the market increases.
  • Daily Mail. Consumer confidence dips in August as people worry about markets chaos and rising unemployment: Consumer confidence fell last month as people worried about the chaos on financial markets and rising unemployment, according to a new survey.