Morning Report: 8 July 2016

8th July 2016 By: Ranko Berich

GBP Sterling strengthened yesterday morning against both EUR and USD, but lost most of its gains throughout the afternoon. The Gfk Consumer Confidence Index was released earlier today showing the biggest drop since December 1994. The index is one of the first indicators collecting data post-Brexit and reflects the market’s nervousness after the referendum’s result. Should consumers freeze their spending on post-Brexit fears, the retail sector could pose a significant setback to economic growth in the UK. Official goods trade data was also released today showing a modest contraction of the deficit to £-9.9bn, although it has been largely ignored by markets.

EUR The euro has strengthened overnight against the US dollar, but remains stable against GBP. The euro is proving to be resilient to the concerns raised with regard to the situation of the Eurozone’s banking system, particularly in Italy. Since the beginning of July 2009, the Italian banking sector has lost two-thirds of its market value, a process that accelerated after the UK’s EU referendum. The ECB reports the results of its stress tests towards the end of the month, which could place the euro under strong pressure if important weaknesses to the bank’s balance sheets arise.

USD The dollar is in a soft tone this morning as markets await the results of the all-important Non-Farm Payrolls report for June. Expectations show that there has been a healthy rebound from May’s report, which many analysts believe now was just an aberration in the data, rather than a reason to worry. Nonetheless, fixed income markets have almost entirely discounted any possibility of a rate hike in July regardless of the headline job creation, which could limit any upside potential in the USD. The report is released at 13.30 BST and includes job creation figures, average hourly earnings and the unemployment rate.

CAD The loonie fell sharply yesterday after crude oil inventories fell less than expected. Gasoline inventories are currently at multi-year highs, which is concerning considering that gasoline demand is also at its highest this year. Despite the high gasoline demand, supply shows no signs of tightening, which could lead to sustained pressure on crude oil prices. Like the US, labour market data is released today in Canada at 13.30 BST.