Morning Report: 7 April 2016

7th April 2016 By: Ranko Berich

GBP Nothing can stop sterling’s downward trend at the moment. However, the continued fall has not been triggered by economic fundamentals or central bank action, but instead due to continued political turbulence. The markets main focus at the moment is the continued fallout from the so-called ‘Panama papers’- the largest document leak from the offshore financial world in history, which at one stage appeared to implicate the Prime Minster, David Cameron himself. Though the Prime Minister does now appear to have demonstrated that he, nor his wife, were involved in any tax evasion, the leak comes on the back of several weeks of issues for his premiership, which included one of his senior minister’s resignation, his government being forced to U-turn on a key element of the budget, and accusations of failing to protect Britain’s industrial sector on the Tata Steel sale. With the upcoming referendum on European Union membership, every fresh blow to the incumbent government is perceived to increase the likelihood of a “leave” vote, which is causing the market to be skittish. No economic data is due to be released today.

EUR It was a case of the euro benefitting from being the ‘least ugly’ yesterday, advancing against both sterling and the US dollar, despite very poor retail survey data, which fell into contractionary territory again after the recovery seen in March. Today at 12.30 BST will be released the European Central Bank meeting accounts in which markets will be able to assess the rationale behind the last ECB’s meeting and implications for the future. At 15.00 Mario Draghi is expected to attend a meeting of the Portuguese President Council, however, he is not expected to comment on monetary policy directly.

USD The dollar fell sharply yesterday afternoon, trading inversely with the price of crude oil, after data showed that crude oil inventory levels had surprisingly fallen. It then fell further after the release of a dovish Federal Reserve minutes which signalled a clear division within the members of the Federal Open Market Committee. Among this members most agreed that April was not an appropriate date to increase rates. However, some participants indicated that they could vote for a hike in the next meeting if data remained consistent with their expectations for moderate growth. Unemployment claims data is released today at 13.30 BST and the Federal Reserve President, Janet Yellen, is expected to speak at 22.30 with former Fed Presidents Volcker, Bernanke and Greenspan.

CAD The loonie benefited from yesterday’s surprise drop in crude oil inventories jumping almost 1% on the back of the release and appreciating further overnight. Crude oil market sentiment is on the upside as Kuwait’s oil minister stated recently that an agreement could be reached in the OPEC meeting taking place on April 17th, even without Iran’s collaboration. The only piece of data to be released today are the building permits at 13.30 BST.

UK News

  • Wall Street Journal. Brexit May Be Bigger Risk for Eurozone Than U.K.. The debate over Britain’s exit from the European Union, so far, has focused largely on the economic impact on the U.K. itself. That reflects not only the fact that it is British voters who will decide whether the U.K. remains a member of the European Union in the June 23 referendum but also an assumption that it is the U.K. that has most to gain or lose.
  • BBC. Panama Papers: Cameron’s 2013 concern over trust reforms. David Cameron expressed concerns in 2013 over EU efforts to reveal the beneficiaries of offshore trusts. He wrote to EU officials saying there were “important differences” between trust and shell companies and plans for public ownership registers for firms may not “be appropriate generally”.
  • FT. UK house prices still soaring – Halifax. The Halifax house price index for the UK shows that annual pace of house price rises was some 10.1 per cent in March, up from 9.7 per cent in February, and above forecasts for a more modest rise of 9.5 per cent. It’s the highest annual growth rate since July 2014.