Morning Report: 9 September 2015

9th September 2015 By: Ranko Berich

GBP Sterling’s recovery against USD and EUR continued to gain momentum yesterday, as speculation about tomorrow’s Bank of England meeting minutes intensified. No rate hikes are expected tomorrow, but the BoE’s remains in the same conundrum as always. Headline inflation remains low, core inflation is on a downwards trend, and are looming risks from slow growth overseas and shocks to commodity prices. However, the economy remains in good shape, with unemployment low and wages rising. Today’s Industrial Production and Trade Balance data will be relevant for judging just how badly the primary and secondary sectors of the UK’s economy have been harmed by sterling reaching multi-year highs against the euro last month, and soft external demand. Both statistics will be released at 09:30 BST. In the afternoon at 15:00, the National Institute for Economic and Social Research will release its latest estimate of Gross Domestic Product growth.

EUR The euro has been performing well over the last couple of trading sessions, and despite some losses to sterling this remained the case yesterday. Data released yesterday showed that Germany’s Trade Balance remained well in surplus yesterday, with exports outstripping imports by a whopping €22.8bn. German exporters are clearly enjoying the benefits of a weakened euro, and, arguably, decades of tight fiscal policy and low wage growth which have resulted in extremely high labour cost competitiveness. France’s trade balance remained in deficit, however, highlighting how their economy has failed to take advantage of the Eurozone project to the extent the Germans have. Eurozone Gross Domestic Product growth was revised to 0.4% for the second quarter, slightly better than expected. No euro data will be out today.

USD EURUSD has had a volatile 24hours, with the dollar collapsing in value and then rallying on two separate occasions. In the meantime, USD has generally sold off against the rest of the G10. Yesterday’s fundamental data releases told a different story, as the NFIB Small Business Index rose to 95.9, reflecting a modest improvement in the optimism of small business survey respondents. The Labour Market Conditions Index, which is an amalgamation of different labour market indicators, also rose to a level suggesting that the outlook for the labour market remained very strong. Today will see the release of the Job Openings and Labour Turnover Summary at 15:00 BST, another mid-tier labour market statistic that is of elevated importance at the moment due to next week’s Federal Reserve meeting.

CAD Today is a big day for the Canadian dollar, which took advantage of the USD pullback yesterday to post a rally from the extremely weak levels seen around midnight BST. The Bank of Canada’s latest Overnight Rate decision will be announced today at 15:00 BST, accompanied by a Rate Statement. After last month saw the Bank cut rates to 0.5%, further reductions are not likely at this meeting. However, the possibility of further easing action can’t be ruled out: since the last meeting commodity prices have seen further downwards shocks, and the outlook for external demand from China has worsened significantly.

UK News

  • FT. Living wage will hit profits and jobs, warns new CBI head: Ministers have underestimated the “dramatic impact” of the national living wage on companies’ profitability and hiring, and badly timed its introduction, says the new CBI president.
  • Reuters. Prices on UK high streets fall again, food prices edge up: British shop prices fell as sharply in August as in July but the price of food edged up for a second month in a row, the British Retail Consortium said on Wednesday.