Morning Report: 12 September 2017

12th September 2017 By: Ranko Berich

GBP Sterling saw some intraday volatility against the dollar, but appreciated steadily against the euro yesterday, suggesting that sterling’s long downwards trend against the single currency is finally facing a substantial challenge. Brexit legislation intended to withdraw the UK from the EU and translate elements of EU law to domestic statutes passed its second reading last night, largely without any market impact. Inflation data, released a few minutes ago, reached new highs both in the headline and core readings. Core inflation rose to a 6-year high at 2.7% year-on-year, beating all estimates. As a result, it would not be surprising to see new interest rate hike talks in the market in the near future.

EUR The euro sold off to USD and sterling yesterday, amid a lack of headline data releases and news stories. Italian Industrial Production beat expectations marginally to expand 0.1% in July, leaving year on year growth at an impressive 4.4%. This morning, French Private Payrolls expanded 0.4% in the second quarter, slightly less than expected, and Italian Unemployment fell to 11.2%.

USD USD enjoyed a small but potentially significant recovery from Friday’s 33-month lows, but appears to be losing momentum again today. Further initial reviews of damage from Hurricane Irma suggested that the net cost of the hurricane may not be as severe as previously expected, placing market focus on the headline US data releases scheduled for later this week, especially Thursday’s Consumer Price Index. Today at 15:00 BST, the Job Openings and Labour Turnover Summary will be released.

CAD The loonie remains near 2-year highs and quickly recovered some dollar strength seen yesterday afternoon. Favourable housing starts data helped to recover the momentum from last week, after positive labour market data failed to ignite additional CAD strength. The calendar is very scarce for the rest of the week. The loonie will therefore remain out of the spotlight.

UK news

  • FT: UN agrees stronger sanctions against North Korea. China and Russia adopt Security Council resolution after US proposals watered down. The UN has unanimously adopted its strongest sanctions yet on North Korea, aimed at depriving Pyongyang of more than $1.3bn in annual revenues and boosting pressure on Kim Jong Un’s regime following its recent nuclear test. The measures, which include an embargo on textile exports, a halt to employing additional North Korean workers overseas and a cap on refined petroleum trading that will reduce oil imports by 30 per cent, won support from China and Russia, but only after stronger proposals circulated by the US were watered down.
  • FT: UK inflation gains pace faster than expected. UK prices are rising faster than the market had expected, with year-on-year gains in the consumer price index of 2.9 per cent, above forecasts for a gain of 2.8 per cent and higher than the previous month’s reading of 2.6 per cent. Rising prices for clothes and motor fuels were the main contributors, the ONS said. The figures sent sterling shooting higher. Gains in the price index including housing costs (the CPIH) rose to 2.7 per cent, from 2.6 in July. The ONS points out that while the weaker pound may well have contributed here, it’s not the only big macroeconomic driver.
  • Reuters: Post-Brexit customs checks could cost 4 billion pounds a year, study says. The introduction of post-Brexit customs checks could cost traders more than 4 billion pounds a year, according to a think tank report released on Monday. The British government has said it plans to leave the European Union’s customs union when it leaves the bloc, and it wants to negotiate a new relationship that will ensure trade is as free of friction as possible. In its report ‘Implementing Brexit: Customs’, the Institute for Government said the government needed to offer as much certainty as possible to business and help them plan for changes to customs.