Morning Report: 16 August 2017
16th August 2017 By: Ranko Berich
GBP Sterling continued to weaken yesterday, avoiding falling below 2010’s low against the euro by a hair’s breadth. Price index data from the ONS showed Consumer Prices rising 2.6% year on year, unchanged from last month. Core CPI, which excludes volatile items like fuel, was also unchanged from last month. Both the readings were short of expectations, and sterling sold off on the news. Today at 09:30 BST the week’s second major raft of UK data will be released, with Labour Market figures including Unemployment and, crucially, the Average Earnings Index, which has been showing wage growth trend downwards in recent months. Expectations are low for earnings in particular, although this does mean the bar is low for a surprise to the upside.
EUR The euro made further progress against sterling, but did weaken to USD after the release of strong US data in the afternoon, not quite managing to regain its losses afterwards. Italian Gross Domestic Product growth has already been released this morning at 0.4%, in line with expectations, although the Dutch GDP beat expectations showing a 1.5% quarter-on-quarter growth, the fastest pace since 2008. Eurozone Gross Domestic Product growth will be released at 10:00 BST, and is expected by many forecasters to show the eurozone economy growing at around 0.6% in the second quarter, the fastest quarterly rate of growth since 2011.
USD The nascent USD rally that began with the release of Non-Farm Payrolls report earlier this month is beginning to build momentum this week, and the greenback strengthened further yesterday with the release of firm Retail Sales data in the afternoon. The retail data expanded by 0.6% in July, or 0.5% excluding automobiles, significantly more than expected, while there were strong upwards revisions to past figures. The Empire State Manufacturing Index was also released, and showed a strong improvement in business conditions reported by survey responders. Today’s US releases have the potential to be equally significant for USD, with Building Permits and Housing Starts due for release at 13:30 BST, followed by meeting minutes from the Federal Open Market Committee at 19:00 BST. Market expectations for the Fed’s next few meetings are at rock bottom. After senior member Bill Dudley earlier in the week made comments seemingly constructive for near term hikes tonight’s minutes will be closely examined for where the consensus on the committee lies.
CAD Yesterday saw yet more losses for the loonie against USD, as the greenback was well bid after firm data in the afternoon and crude oil prices failed to rally after Monday’s losses. Today at 13:30 BST Foreign Securities Purchases data will be released, followed at 15:30 by Crude Oil Inventories from the US Energy Information Administration.
- FT: UK Brexit plan to leave Irish border free of customs posts Latest government paper aims to tackle one of thorniest issues of departure. Britain has proposed that the Irish border remain free of physical customs posts after the UK leaves the EU as part of government plans to tackle one of the thorniest Brexit issues. The proposal, contained in a position paper to be published on Wednesday, will raise questions about how Britain and the EU would control immigration and trade on either side of the 310-mile land border, which has nearly 300 formal crossing points. Theresa May’s government has begun detailing its negotiating positions on Brexit, ahead of a fresh round of talks on August 28. The European Commission has warned that the “clock is ticking”. On Tuesday, Britain said it would seek “a new customs partnership” removing the need for a new UK-EU customs border, or “a highly streamlined customs arrangement” using technology to smooth border traffic.
- Reuters: ECB’s Draghi will not deliver fresh policy steer at Jackson Hole European Central Bank President Mario Draghi will not deliver a new policy message at the U.S. Federal Reserve’s Jackson Hole conference, two sources familiar with the situation said, tempering expectations for the bank to start charting the course out of stimulus. An ECB spokesman said that Draghi will focus on the theme of the symposium, fostering a dynamic global economy, in his Aug. 25 remarks, while the sources added that he was keen to hold off on the policy discussion until the autumn, as agreed at the last rate-setting meeting in July. Expectations for the speech had been building in recent weeks with investors pointing to next Friday’s event as the likely kick off in the ECB’s debate how to recalibrate monetary policy given solid growth, rapidly falling unemployment but persistently weak underlying inflation.