Morning Report: 7 September 2015

7th September 2015 By: Ranko Berich

GBP Sterling’s relentless downwards trend against the US dollar is showing very tentative signs of stabilisation this morning, but with an eventful data calendar this week further losses cannot be ruled out.  Although no data will be released today, Industrial Production is scheduled for Wednesday at 09:30 BST, followed on Thursday by the Bank of England’s latest rate announcement, accompanied by the Bank’s latest meeting minutes. Inflation remains low in the UK, and core inflation has been on a clear downwards trend for months, but expectations are nonetheless building for the Bank of England to begin to look seriously at raising interest rates, meaning the minutes will be closely scrutinised. In particular, weak external demand from the eurozone and falling commodity prices pose serious risks that appear to have increased since the BoE’s last meeting and will have to be addressed.

EUR The euro has yet to recover from the blow it was dealt last week by Mario Draghi’s unambiguously dovish European Central Bank press conference. Friday’s German Factory Orders data added to the gloom, with factory orders contracting 1.4% in July, erasing most of June’s impressive gains. This week will be rather sparse in terms of euro data, although Sentix Investor Confidence will be out at 09:30 BST today, and the latest revision to eurozone GDP will be out tomorrow morning at 10:00.

USD Friday’s much-anticipated non-farm payrolls report changed very little for the US dollar, or for the outlook for monetary policy in the US. Although headline Non-Farm Payrolls did grow by only 173,000 in August, last month’s growth was revised upwards, and unemployment fell to its lowest level since 2008, while Average Hourly Earnings beat expectations to grow at 0.3%. All in all, the report detailed another month of steady improvement in the labour market: not enough to change the current outlook for monetary policy in the US, which is for slow and very limited rate hikes beginning this year. US banks will close today for Labour Day, and this will be a somewhat slow data week. Wednesday will see the Job Openings and Labour Turnover Summary released, and Producer Prices are scheduled for Friday.

CAD Upside remains extremely limited for the battered Canadian dollar, and this week’s Bank of Canada meeting is expected to confirm a rather gloomy outlook for the economy. The BoC will release a new Rate Statement alongside the latest Overnight Rate decision, on Wednesday at 15:00 BST. The latest plunge in commodity prices and the worsening outlook for growth in China are two fairly grim portents for Canada, and the BoC will need to respond to this change in conditions from their last meeting. Although further rate cuts are unlikely at this particular meeting, they are not entirely off the cards: the Bank of Canada has previously shown itself to be very willing to act proactively at the first sign of trouble.

UK News

  • FT. Skilled workers gain upper hand in jobs market: Skilled workers gained the upper hand in the jobs market in August as recruiters struggled to fill posts, raising salaries for both permanent and contract staff.
  • FT. Manufacturing braces for bleak autumn: The UK’s manufacturing sector is braced for a bleak autumn, with growth forecasts slashed in response to worldwide economic uncertainty.
  • Daily Mail. Shortage of homes set to fuel new price boom as figures show enquiries from potential new buyers are surging: There could be another boom in house prices by the end of the year as the supply of homes being put up for sale dwindles.
  • Daily Mail. Non-borrowing companies ‘mask steady growth trend’ in finance for smaller firms, latest analysis suggests: A hard core of companies that do not want to borrow money are masking the growth in finance for smaller firms, according to the latest analysis.