Morning Report: 30 September 2015

30th September 2015 By: Ranko Berich

GBP As the euro and dollar swung back and forth during a volatile session yesterday, sterling was the main loser, falling to fresh lows for the month against both of its major trading partners. The actual fundamental data released yesterday was certainly not bad enough to explain sterling’s depreciation: Bank of England money supply data showed headline M4 money supply contracting by 0.4% after expanding rapidly in the previous month. Net Lending to Individuals continued to expand, as did mortgage approvals. Later in the morning, the Confederation of British Industry released its Realised Sales index, which showed a large increase in sales volumes reported by survey respondents. Today at 09:30 BST, Current Account data will be released alongside the final revision to Gross Domestic Product growth in the second quarter. Alongside the GDP data, the latest indices for activity in the services sector, as well as business investment, will be released.

EUR EURUSD was a battleground yesterday, with the euro at first extending its gains from yesterday throughout the morning, despite some deeply concerning regional German inflation data. After a brief burst of dollar strength in the afternoon, the euro once again rallied, closing the day slightly up vs open. The euro’s strength flies the face of yesterday’s fundamental data, which was overwhelmingly bad news. Spanish and German Consumer Price Index inflation fell well below expectations in September, with Spanish CPI showing almost 1% of deflation on a year on year basis. On a month on month basis, German prices fell 0.2%, while import prices in Germany fell 1.5%. The European Central Bank has repeatedly stated that it is ready to hit markets with more quantitative easing if risks to its inflation outlook emerge. Such risks are now certainly emerging. The importance of today’s eurozone CPI data is difficult to overstate. If a similar deflationary shock to Germany’s is seen, the euro is likely to be on borrowed time until the next ECB press conference, on the 18th of October. Eurozone CPI will be released today 10:00 BST.

USD NZD and AUD performed well against USD yesterday, and EURUSD was volatile but the greenback did manage to strengthen against GBP and JPY. The afternoon’s fundamental data calendar did contain one noteworthy surprise, as the Conference Board’s Consumer Confidence index rose to 103, the highest level highest since Q1. House prices, as measures by the S&P Case-Shiller index, rose a healthy 5.0% year on year. All in all, the US economy still looks in reasonably good shape, with consumption and the housing market picking up the slack left by a downturn in manufacturing. Today ADP’s estimate of Non-Farm Payroll creation will be released at 13:15 BST, followed by the Chicago Federal Reserve’s Purchasing Managers Index at 14:45 BST. Janet Yellen, Fed Chair, will deliver remarks at a community banking conference in St. Louis at 08:00 BST.

CAD Despite USD losing some ground to fellow G10 commonwealth currencies AUD and NZD yesterday, loonie continued to weaken. Monthly price data for Raw Materials showed prices plunging 6.6% in August, which was actually slightly less than the contraction expected by analysts, while industrial products fell 0.3%, also a small contraction than expected. Nonetheless, the data outline the immense pressure Canada’s natural resource sector has been placed under due to the latest falls in commodity prices. Today at 13:30 BST, the latest monthly GDP data will be released.

UK News

  • Reuters.UK house price growth picks up in September: British annual house price growth picked up in September, rising to 3.8 percent from 3.2 percent in August, mortgage lender Nationwide said on Wednesday, adding to signs that the housing market is heating up again.
  • Reuters. UK consumer confidence dips, hit by China and migrant crisis: British consumer morale fell more than expected in September as people worried about China’s economic slowdown and Europe’s migration crisis, a survey showed on Wednesday.
  • Telegraph. Bank of England governor Mark Carney calls on insurers to help prepare for climate change: The Bank of England governor is urging the UK’s biggest insurance companies and investors to help counteract the financial shocks that could be triggered by climate change.
  • Telegraph. Britain slips down global competitiveness league table: Britain has slipped down a place in the global competitiveness rankings, despite cementing its status as the “epicentre” of Europe’s start-up scene, according to the World Economic Forum.