Morning Report: 3 September 2015

3rd September 2015 By: Ranko Berich

GBP Yesterday’s session saw sterling show some backbone against the US dollar, strengthening from its initial plunge to new lows. Today will be a test of if GBPUSD can avoid falling to a new low for the month. The UK’s construction sector continues to grow at a rapid pace, according the yesterday’s survey results from Markit. The research company’s Construction Purchasing Managers’ Index was 57.3 in August, indicating that expansion in homebuilding and commercial construction continues apace. Today at 09:30 BST, the equivalent index for the Services sector, which represents the bulk of the UK economy, will be released.

EUR The euro weakened again yesterday, ahead of today’s ECB announcements and press conference. Today’s ECB press conference will be the least predictable in some time, as the set of circumstances faced by the central bank are the most challenging since the beginning of its quantitative easing programme in Q1. On one hand, the euro has strengthened from the lows seen earlier this year, and government bond yields have risen slightly. Both of these developments represent a form of tightening for the eurozone economy, the exact opposite of what the ECB is trying to achieve. However, recent money supply data shows that lending to the real economy is finally growing healthily, the best possible overall sign that the eurozone’s credit cycle has turned and improvement is to follow. On top of this, additional uncertainty from Greece and global market turmoil further muddy the economic outlook. There are certainly a lot of issues to address, and one of the best ways of getting to the core of the ECB’s thinking will be to look at the bank’s staff economic projections, especially for inflation. If inflation projects are moved downwards, it’s entirely possible that an extension of the ECB’s current easing programme may be on the cards. The ECB’s latest interest rate decision will be announced at 12:45 BST, followed at 13:30 by a press conference.

USD Dollar trading remains in the shadow of Friday’s all important Non-Farm Payrolls report, and USD remained largely within recent trading ranges against many of its major partners. Yesterday’s fundamental data contained some surprises, with factory orders falling including automobiles rising by less than expected, while productivity soared in the latest data for Q2. In particular, the productivity increase is a good sign for the economy, but a bad sign for USD, as it may be interpreted by the Federal Reserve as showing that the economy can absorb low interest rates for longer without any undue increase in inflation. ADP’s monthly estimate of job creation reckoned 190,000 jobs had been added in August, a drop from last month and less than expected. The heavy week of US data continues this afternoon, with the release of Trade Balance data along with weekly Unemployment Claims at 13:30 BST. Later in the afternoon, Purchasing Managers Indices for the Services sector will be released by Markit and ISM at 14:45 and 15:00 BST respectively.

CAD Crude oil inventories once again began to expand in North America yesterday, but crude oil recovered surprisingly well from the bad news, and as a result CAD’s losses were small compared to the depreciation seen earlier in the week. Crude oil inventories rose by 4.7 million barrels in the United States, after several weeks of declines, indicating a renewal of oversupply in the market. Today at 13:30 BST, Trade Balance data for July will be released.

UK News

  • FT. Number of empty shops up by a quarter: The number of empty shops in the UK has jumped24 per cent to nearly 10,000 in the first half of this year, according to the Local Data Company.
  • Reuters.  Insecure ‘zero-hours’ jobs on the rise in Britain – ONS: The number of Britons reporting they are employed on ‘zero-hours’ contracts which offer no guaranteed work or pay has risen by almost a fifth over the past year, official figures showed on Wednesday.