Morning Report: 14 September 2017
14th September 2017 By: Ranko Berich
GBP After sterling surged to a high for the week in the wake of Tuesday’s inflation figures, yesterday’s morning report noted that the week was far from over for the pound, and the statement remains relevant today, with GBPUSD having suffered a significant reversal yesterday to trade roughly unchanged compared to Tuesday morning as of the time of writing. September’s Labour Market report showed unemployment falling to a fresh multi decade low of just 4.3%, but Average Weekly Earnings rose by 2.1%, missing expectations for an acceleration and underlining that a rate hike from the Bank of England is far from assured in the coming quarters. As of the time of writing, GBPUSD is roughly unchanged compared to before Tuesday’s inflation release. However, the week is still not over for sterling, and today’s Bank of England events are likely to prove the deciding factor. The latest Monetary Policy Summary will be released alongside a rate decision and minutes detailing how Monetary Policy Committee members voted at 12:00 BST. As no new Inflation Report will be released, there will be no press conference, but given the rising uncertainty around inflation, wages, the other releases retain the potential to prove decisive for sterling.
EUR The euro fell back again versus USD yesterday, as the greenback rallied on talk of tax reform. The euro data calendar livened up somewhat compared to Monday and Tuesday, with the release of eurozone Industrial Production figures, which recovered 0.1% in July, after a sharp 0.6% drop previously. This morning’s data has include French Consumer Price Index inflation, which rose 0.5% in August, as expected. No further headline euro data will be released, although German Bundesbank head Jens Weidmann will speak at 16:30 BST.
USD USD rallied yesterday as Donald Trump urged Congress to act on tax reform, raising once again the prospect of fiscally driven inflation creating USD strength. Trump tweeted, with characteristic hyperbole, that the “Biggest Tax Cut & Tax Reform package in the history of our country” was on the way, prompting House Speaker Paul Ryan to promise initial proposals by the end of this month. Tax reform remains an explosive prospect for the US dollar, due to the potentially inflationary consequences of a fiscal expansion given today’s tight labour market conditions. However, despite the small bump in USD seen yesterday, markets remain sceptical, given the lack of breakthrough legislative achievements from the administration so far. Yesterday’s data included a slightly soft reading for the Producer Price Index, which rose 0.2% in August, less than expected. Today at 13:30 BST, all important Consumer Price Index data will be released, alongside weekly Unemployment Claims data which are likely to show an increase driven by Hurricane Irma.
CAD Yesterday’s US dollar strength saw the loonie fall back further, extending the mild upwards trend in the pair that has been in place since Friday. However, it is worth noting that crude oil prices rose sharply yesterday as data from the US Energy Information Administration showed that although crude stockpiles had risen, Gasoline Inventories had seen their biggest drop since 1990, suggesting that demand for crude would rise sharply in the immediate future as refineries affected by adverse weather conditions in the US resume operations. Today at 13:30 BST the New House Price Index will be released.
- FT: Hammond admits EU has ‘legitimate’ concerns about City regulation Chancellor pledges co-operation as May sets September 22 Brexit speech in Florence. Philip Hammond admitted that the EU had “legitimate concerns” about the future regulation of the City of London on Wednesday night, as he vowed to draw up plans for supervisory co-operation between Britain and Europe after Brexit. “We acknowledge that there are legitimate concerns among our EU colleagues about the oversight and supervision of financial markets here in the UK that are providing vital financial services to EU firms and citizens,” the chancellor told a City audience at Mansion House, London.
- Reuters: London house prices record biggest fall since 2008 – RICS House prices in central London fell at their sharpest pace since 2008 in August, intensifying the slowdown in the capital’s housing market, but prices went up in other regions of Britain, a survey showed on Thursday. The Royal Institution of Chartered Surveyors (RICS) said its monthly balance of overall British house prices picked up to +6 after dropping to a four-year low of +1 in July. Britain’s housing market has slowed since the June 2016 referendum decision to leave the European Union, when prices were rising by about 8 percent a year, compared with growth rates of about 5 percent now, according to official data.