Morning Report: 29 September 2015

29th September 2015 By: Ranko Berich

GBP Sterling continued to sell off in earnest yesterday, with the euro performing particularly well against GBP. GBPUSD failed to reach the lows it momentarily fell to on Monday, while weakening throughout the day nonetheless. The Bank of England’s Jon Cunliffe was on the wires, expressing concerns that low liquidity in certain asset classes represented a risk to financial stability. Cunliffe’s concern underlined just how risk-averse the BoE is at the moment. This morning at 09:30 BST, Bank of England Money Supply data will be released, including Mortgage Approvals and lending data. At 11:00, the Confederation of British Industry will release its Realised Sales index, which tracks if retail sales volumes are higher or lower.

EUR The euro has benefitted from the bearish sentiment in equities this week, and strengthened against much of the G10 overnight and yesterday. This morning’s data calendar has the potential to reverse these gains, however. Consumer Price Index data for the crucial German economy will be released on a regional basis throughout the morning, culminating in overall German CPI at 13:00 BST. After last week’s downwards shock to German Producer Prices, signs of deflation the CPI are likely to weigh heavily on the single currency.

USD It’s been a bumpy night for USD, which has weakened since midnight against almost all of the G10. No less than four members from the US Federal Reserve were on the news wires yesterday, three of which gave differing opinions of monetary policy. The San Francisco Fed’s John Williams reiterated his call for rate hikes this year, while New York’s William Dudley said he would remain “data dependent”. Dudley has previously hinted that he too favours a 2015 hike if possible. Only the Chicago Fed’s Charles Evans leaned on the dovish side, stating that a later lift-off from zero interest rates would help the economy. The rate hike issue is becoming vexed, with many banks and economists growing impatient with the Fed’s caution and calling for hikes now rather than later. Of course, rate hikes are likely to cause a widening in credit spreads, which will likely be a profitable development for many banks and financial institutions, so calls for hikes from the likes of investor Carl Icahn should be taken with a grain of salt. The Fed will be silent today after yesterday’s chatter, but between the release of the Good Trade Balance at 13:30 BST, the Case Shiller House Price Index at 14:00 and CB Consumer Confidence at 15:00 there is still a busy calendar for USD.

CAD The Canadian dollar was one of the few G10 currencies not to strengthen vs USD overnight, weakening as oil took a fresh pummelling off the back of the risk-off sentiment prevailing in markets. Today at 13:30 BST, price indices for Raw Materials and Industrial Products will be released.

UK News

  • Reuters. UK’s skills gap clouds hopes for stronger economy: A worsening skills shortage could blight hopes that Britain can overcome years of dire productivity performance, potentially denting its economic expansion in future, a report suggested on Monday.
  • Reuters. Labour finance spokesman says to back some government budget goals: Britain’s opposition Labour Party will partly back the government’s goal of achieving a budget surplus within five years but will oppose cuts that hurt investment, the poor or average earners, the party’s finance spokesman said on Saturday.
  • Daily Mail. Property market cools as house price inflation continues to slow – but homes in the East of England rise at double the national average: Property market growth has continued to cool with house prices up 4.2 per cent compared to a year ago, official data shows.
  • Guardian. UK interest rate rise unlikely until May 2016, CEBR forecasts: The Bank of England is likely to keep interest rates on hold until the middle of next year rather than raising them sooner, following a gloomier outlook for the global economy, according to the economic forecaster CEBR.