Morning Report: 30 September 2016

30th September 2016 By: Ranko Berich

GBP Sterling is on the rebound this morning after the final revision to Gross Domestic Product in the second quarter showed the economy growing faster than expected. The revision also included one week of post-referendum activity, suggesting that the economy did not crater in the immediate wake of the vote. The release is consistent with previous data that showed strong momentum in Q2. Although questions remain about the the future, particularly around investment, this is another data print that points towards an upside surprise from the UK economy in the immediate future. If the Bank of England backs away from the prospect of further easing as a result of a stronger than expected post Brexit economy, sterling upside beckons.

EUR The euro is under pressure this morning off the back of weak German Retail Sales data and Deutsche Bank’s ongoing woes. The German lender’s share price continues to plummet this morning, sparking some rumours and speculation of a potential crisis, which have been vigorously denied by Bank officials. It’s certainly worth noting that the spread between unsecured euro denominated interbank lending rates and overnight interest rate swaps remains reasonably stable compared to recent levels. The spread between the two rates is an indicator of financial sector stress that usually soars during severe financial crises. Euro data has been mixed this morning, with German Retail sales registering a big miss, but French Consumer Spending exceeding expectations. Eurozone core Consumer Price Index inflation remained stable at 0.8% year on year.

USD GBPUSD and EURUSD have been dictated by local currency events this morning, and the greenback is gaining against the euro and falling vs sterling as a result. Yesterday’s data was strongly USD positive, with Gross Domestic Product growth seeing an upwards revision for Q2 and weekly Unemployment Claims remaining very low by historical standards. Today’s release of the Personal Consumption Expenditure Price Index at 13:30 is the main event for USD, as the index is the Fed’s preferred inflation measure and a pickup would be a strong indicator that a hike can be expected in the near future.

CAD Scepticism of Opec’s resolve was a major theme of crude oil trading yesterday, and although crude oil prices held on to the majority of their gains from Wednesday, the loonie retreated slightly. Today at 13:30 BST monthly Gross Domestic Product Growth data will be released, alongside price indices for Raw Materials and Industrial Products.