Morning Report: 12 July 2017

12th July 2017 By: Ranko Berich

GBP Volatility on FX majors remained low yesterday, although sterling did continue to edge lower against USD. Much anticipated speeches from Ben Broadbent and Andy Haldane passed without incident, with Broadbent steering deliberately clear of monetary policy issues. The Conference Board’s Leading Index, a composite of forward looking economic indicators, read -0.1% for May, slightly less contractionary than before. UK fundamental data has been patchy recently, and so today’s release of labour market data at 09:30 BST, especially the Unemployment Rate and the Average Earnings Index, will be crucial. Average Earnings growth has been trending downwards this year, and a further fall in this month’s data is expected by most forecasters, a development that is likely to pour cold water on the Bank of England’s recent hawkish turn.

EUR The euro saw another decisive break higher against USD yesterday, with a number of potential explanations including comments from European Central Bank policy maker Benoit Coeure, and US political turmoil. Yesterday’s sole data release of note was Italian Industrial Production, which expanded 0.7% in May after a 0.5% fall previously. This morning’s data has included a 0.0% change in the German Wholesale Price Index. At 10:00 BST, eurozone Industrial Production figures will be released.

USD The dollar has yet again come under major pressure in the last 24 hours, taking a particularly significant beating against the euro. Ongoing political turmoil around links between the Trump administration and Presidential campaign and the Russian government remained in the headlines yesterday. The focus this time is on Trump’s son, Trump Jr, admitting to seeking so-called kompromat- compromising material- on Hillary Clinton from a lawyer allegedly linked to the Russian government. Today’s testimony to House lawmakers by Federal Reserve Chair Janet Yellen has the potential to overshadow this latest controversy. The Fed has given no indication yet that soft wage growth and the recent fall in inflation will dissuade it from hiking further, but Yellen is likely to come under intense scrutiny today and it’s possible she will provide material new information. The testimony will begin at 15:00 BST.

CAD Today is a huge day for the Canadian dollar, which has appreciated sharply in recent weeks on rising expectations of monetary tightening from the Bank of Canada. Senior BoC policy makers have been the primary driver of this move, with senior decision makers such as Governor Stephen Poloz and his deputy Carolyn Wilkins both speaking of the possibility, or even desirability, of the BoC reassessing its current level of accommodation. The Bank must now live up to the hawkish rhetoric. Expectations for a hike at today’s meeting are overwhelming: above 90% by some market-based measures of implied probability. How correct this assumption by market participants is remains to be seen, but a failure to deliver would certainly mean a substantial knock for the loonie. The BoC’s latest rate decision, along with a fresh Monetary Policy Report, will be released at 15:00 BST, followed by a press conference at 16:15.

UK news

  • FT: Trump Jr welcomed offer of Russian help to damage Clinton. ‘I love it’, son responded when told Moscow lawyer had detrimental material on rival. Donald Trump Jr, the son of the US president, enthusiastically welcomed an offer of information aimed at hurting Hillary Clinton’s presidential campaign that was purportedly provided by a top Russian government official, according to an email exchange that he released on Tuesday. According to the emails, Robert Goldstone, a music industry PR executive, told the president’s son in June 2016 that two Russian businessmen were willing to share “incriminating” information about Mrs Clinton that they claimed to have received from the top prosecutor in Russia.
  • Reuters: Bank of England’s Broadbent silent on rates, sends pound sliding. Bank of England Deputy Governor Ben Broadbent kept mum on his views about interest rates on Tuesday, prompting financial markets to assume he sees no pressing need to change. Broadbent’s speech in Aberdeen to the Scottish Council for Development and Industry had been keenly watched as a chance to hear the views of a rate-setter who has not commented publicly since the Monetary Policy Committee came unexpectedly close to raising interest rates for the first time in a decade last month. But Tuesday’s comments shed little light. Instead, he spoke on how a reduction in trade between Britain and the European Union would harm both economies and causes prices to rise.