Morning Report: 13 July 2017

13th July 2017 By: Ranko Berich

 

GBP Firm labour market data in the UK and general dollar weakness helped drive a rebound in GBPUSD yesterday, recuperating 1%. The July Labour Market Report from the Office for National Statistics showed that Unemployment had fallen once again, to just 4.5%, the lowest level since 1975. For those inclined to criticise Unemployment as being too narrow a measure of joblessness, the total employment rate had risen to the highest level since comparable records began in 1971. However, wage growth slowed to 1.8% year on year, leaving real wages, or wages adjusted for the effects of inflation, down by 0.7%. As a result, the report had something for the sterling bears and bulls alike – the UK labour market remains in good shape, but real wages are contracting and are likely to put further pressure on consumer spending and confidence. Today at 09:30the Bank of England’s latest Credit Conditions Survey will be released.

EUR The euro was one of the few G10 currencies that did not strengthen against the US dollar yesterday, perhaps indicating that the single currency’s long rally against USD is finally showing signs of old age, or at least some profit taking. Little headline euro data was released yesterday, apart from monthly Industrial Production, which expanded a solid 1.3% in May, and German Wholesale Prices, which changed 0.0% in June. Final German and French Consumer Price Index figures were released this morning, showing 0.2% and 0.0% changes on the month respectively.

USD USD was down against most the G10 and emerging markets yesterday, with euro being the notable exception. Janet Yellen’s testimony to Congressional lawmakers contained few surprises: further rate hikes would be gradual and limited, conditional on improvement in the economy. The Federal Reserve Chair also said that the process of shrinking the Fed’s massive balance sheet would not be used as a policy tightening tool, implying a very gradual pace of cessation of asset reinvestment. Yellen did, however, sound a tad cautious about the outlook for inflation, which has slowed recently. A further slowdown would likely trigger delays in the Fed’s next rate hike, which is currently likely to come sometime this year. Today at 13:30 BST, the latest Producer Price Index data will be released, alongside weekly Unemployment Claims. Yellen will go another round with lawmakers, this time from the Senate, at 15:00.

CAD The Canadian dollar rallied sharply yesterday, as the Bank of Canada raised its headline interest rate by 25 basis points to 0.75%. Despite the move being widely predicted, markets still bought in to CAD in the wake of the announcement, as the accompanying Monetary Policy Report stated that the balance of risks has shifted to the upside for the economy. The release also stated that the bank believes that the amount of economic slack is diminishing rapidly, with the implication being that further interest rate hikes were on the cards. Today at 13:30 BST, the New House Price Index will be released.

UK news

  • Reuters: UK election jitters push house price rises to 11-month low. RICS British house price inflation slowed last month to its weakest since just after last year’s Brexit vote, but this time domestic political worries played the greatest role, a property industry body said on Thursday. The Royal Institution of Chartered Surveyors (RICS) said its monthly house price index dropped to +7 in June from +17 in May, its lowest since July last year and below all forecasts in a Reuters poll of economists. “The term ‘uncertainty’ is featuring more heavily in the feedback we are receiving,” RICS chief economist Simon Rubinsohn said. “This seems to be exerting itself on transaction levels, which are flatlining and may continue to do so.”
  • FT: MPs plot to water down Theresa May’s Brexit bills Pro-Europeans seek to amend legislation so the UK makes a softer exit from EU. Prime minister Theresa May will on Thursday publish the government’s flagship piece of Brexit legislation, marking the start of a parliamentary war of attrition over the form of the UK’s departure from the EU and posing a major test of her authority. The repeal bill to transpose EU law on to the UK statute book will be the first of eight Brexit bills Mrs May hopes to get enacted, all of which could face amendment by MPs and peers who want to push Britain towards a “softer” exit from the bloc. With a working Commons majority of just 12 following the Conservatives’ poor performance in last month’s general election, Mrs May could face weekly challenges by pro-Europeans against her hard Brexit plans, knowing that any moves to water them down risk provoking rebellions by Tory Eurosceptics.