Morning Report: 15 June 2017

15th June 2017 By: Ranko Berich

GBP Sterling saw a lot of intraday volatility against the euro and the dollar yesterday, but ultimately closed very near to where it opened. Yesterday’s main release was labour market data from the ONS, which showed that although the Unemployment Rate remained exceptionally low at just 4.6%, growth in the Average Earnings Index had slowed to 2.1% for the three months ended June, compared to the same period a year ago. This left real wage growth at -0.6% over the same period, which is worrisome considering the modest slowdown seen in real wage growth earlier this year resulted in a sharp slowdown in consumer spending. Real wages were higher in 2008 than they are today, a particularly damning outcome for the economic and social policy of the last decade. Today at 09:30 BST, the latest Retail Sales figures will be released, with most forecasters expecting a contraction.

EUR The euro also closed more or less flat vs USD yesterday, but saw one large and short lived intraday swing to the upside. Germany’s Consumer Price Index was confirmed to have contracted 0.2% in May, while eurozone Industrial Production rose 0.5% in April, and quarterly labour market data showed Employment had increased 0.4% in the first quarter. French CPI changed 0.0% in May, and at 10:00 BST the latest Eurozone Trade Balance figures will be released.

USD The dollar took a drubbing yesterday afternoon in the wake of poor Retail Sales and inflation figures, but a rate hike from the Federal Reserve reversed the losses later in the session. The Consumer Price Index contracted 0.1% in May, taking year on year inflation to 1.9%, down from 2.2% previously. Retail sales also contracted by 0.3%, the biggest monthly drop in 16 months. The Federal Reserve’s rate setting Federal Open Market Committee, however, was confident enough that the current slowdown in inflation will prove temporary to raise interest rates last night. The Federal Funds Rate’s target range was boosted 25 basis points, to 1-1.25%. Chair Janet Yellen and the rest of the FOMC did make it clear they were watching the current inflation slowdown “closely”. The current view of the committee appears to be that the slowdown is due to transitory factors such as changes in prices for prescription drugs and phone services. The statement accompanying the decision also mentioned that the Fed expected to begin to normalise its balance sheet at some stage in the future, a further act of monetary tightening. Today at 13:30 BST weekly Unemployment Claims will be released alongside survey data from the New York and Philadelphia Federal Reserves, followed at 14:15 by Industrial Production data.

CAD Amid yesterday’s pre-Fed USD sell off CAD did manage to reach a new high against the greenback, but reversed its progress after the US rate hike. No Canadian data was released, and today at 13:30 BST monthly Manufacturing Sales will be released.

UK news

  • FT: UK plans ‘very generous’ offer to 3m EU citizens Brexit talks opening gambit with Davis reported angry at talk of chaos in department. The UK Brexit secretary David Davis will start talks in Brussels next week with plans to make a “very generous” offer on rights for the 3m EU citizens living in the UK and with officials insisting Britain enters the negotiations with “head held high”. British officials will travel to Brussels on Thursday hoping to finalise arrangements for the start of formal talks on Monday and Mr Davis is said by colleagues to be “determined to get started”. The UK’s offer to EU nationals living in Britain will guarantee them the rights they currently have and aim to treat them “as fairly as they have been to this point”, according to Whitehall officials. Britain wants the cut-off point for citizens’ rights to be March 29 this year, when the UK notified its intention to leave the EU, but is expected to accede to EU demands that the date should be Brexit day itself in 2019.
  • Reuters: Hard or soft Brexit aside, pound nervous of economic slowdown Last week’s shocking British election result and the period of political uncertainty that looks set to follow may have come at the worst of times for the country’s economy and the value of the pound sterling. Until 10 p.m. London time last Thursday, Prime Minister Theresa May’s decision to call the snap poll did not look like a pivotal point for the most-sold major currency of last year. Sterling lost almost a fifth of its value between June 2016, when Britons voted to leave the European Union, and November. Many had begun to assume that would be the full extent of the “Brexit discount” demanded by overseas investors to keep faith with the world’s fifth-largest economy. But May’s loss of her majority drove a 2 percent fall in the pound on Friday and another 1 percent on Monday, and traders now say the election could prove another turning point for sterling.