Morning Report: 8 April 2016

8th April 2016 By: Ranko Berich

GBP Sterling is up against most of the G10 currencies despite the headlines. Profit taking ahead of the weekend is weakening safe haven currencies such as Japanese Yen (JPY), which is benefiting sterling (GBP) since it had previously fallen the most against JPY. The last relevant pieces of data for this week from the UK are the manufacturing production and trade balance figures, both released at 9.30 BST. A decline in manufacturing production is expected, which has been in a downward trend since July 2015. Trade balance data will shed some light on how a considerably weaker pound is filtering through the economy.

EUR The euro is on the back foot this morning against most currency crosses, with the exception of safe havens JPY and Swiss franc. A number of European Central Bank officials spoke to the media yesterday. Peter Praet, Chief Economist of the ECB, signalled that the ECB could recalibrate its monetary policy stance if inflation and economic growth do not recover. Mario Draghi and Victor Constancio, ECB’s President and Vice-president respectively, followed Praet with similar downbeat remarks, pointing out that more rate cuts cannot be ruled out should further adverse shocks materialize. As a conclusion, it seems that the ECB is uneasy about current euro strength. Today’s euro related data has already been released, observing a slight improvement in the German trade balance and a contraction in monthly French industrial production.

USD The greenback is under pressure this morning after yesterday’s cautious comments from the Federal Reserve’s President Janet Yellen. Yellen appeared on a panel with former Fed Presidents Volcker, Bernanke and Greenspan, talking down statements made by the Republican presidential contender Donald Trump who had suggested a bubble could be about to burst in the US. On monetary policy Yellen signalled that the central bank is more than capable to tackle rapidly increasing inflation. However it would be helpless to stop an economic recession; both reasons to be more cautious about hiking interest rates. No economic data is due today but FOMC’s Dudley is expected to give a speech at 13.30 BST.

CAD The Canadian dollar (CAD) has been volatile this week as oil price fluctuations have been the main driver. The market is keenly awaiting the outcome of the OPEC meeting on April 17 as two of the major players currently seem to be at loggerheads. Firstly, Iran refused to freeze production, which pushed down the price of oil and then Kuwait’s oil minister stated that an agreement for OPEC to freeze production could be reached even without Iran’s collaboration. Looking ahead, similar volatile CAD and oil prices should be expected as officials and authorities, from the participant countries, speak to the media ahead of the meeting.

UK News

  • BBC. UK labour productivity fell in final quarter of 2015. Productivity among UK workers at the end of last year fell at the fastest pace since 2008, official figures show. Worker output per hour in the UK fell 1.2% during the last three months of 2015 compared with the previous quarter, according to data from the Office for National Statistics (ONS).
  • Financial Times. UK productivity falls by most since financial crisis. Productivity in Britain has deteriorated by the most since the financial crisis, adding to concerns about the economy’s underlying strength. The productivity of UK workers — measured by their economic output per hour — fell 1.2 per cent between the third and fourth quarters of last year. This was the steepest drop since the fourth quarter of 2008, when the UK was in recession.
  • The Telegraph. UK manufacturing slumps as trade deficit with EU hits fresh record ahead of Brexit vote. UK manufacturing output suffered its biggest drop in almost three years in February as Britain’s quarterly trade deficit in goods with the rest of the EU hit a fresh high.