Morning Report: 17 August 2017
17th August 2017 By: Ranko Berich
GBP Solid labour market data caused a small rally for sterling against both the euro and the dollar, the former completely reversing by midnight while GBPUSD did manage to close slightly higher. Unemployment fell to just 4.4%, while average earnings ticked up 2.1% over the three months to June, compared to the same period a year ago. Nominal weekly earnings were up 2.8% year on year in June, significantly faster than recent months, although this is a very volatile series which is exactly why the 3m/YoY average is more widely reported on. It’s far too early to conclude that the spike seen in June is an indication of wage inflation returning to the UK, but is nonetheless a sliver of good data, which if replicated in coming months will suggest the BoE’s optimism on wage growth may ultimately be proved correct. Today at 09:30 BST monthly Retail Sales data will be released.
EUR The euro took advantage of the broad dollar weakness seen yesterday evening to erase Tuesday’s loses for EURUSD. Eurozone Gross Domestic Product data showed the economy growing 0.6% in the second quarter, broadly in line with expectations. Year on year growth was 2.2%, with strong contributions coming from central and eastern European countries as well as Spain and the Netherlands. French unemployment fell to its lowest level since 2012, to 9.5%, in line with forecasts but still above euro area unemployment. Today at 10:00 BST eurozone Consumer Price Index data will be released alongside Trade Balance, and at 12:30 the European Central Bank’s latest meeting minutes will be out. The ECB is trying to work out how to acknowledge that improving fundamentals in the eurozone will eventually require tighter monetary policy without causing undue tightening in financial conditions, so the minutes are unlikely to give much away.
USD USD sold off broadly yesterday after the latest meeting minutes from the rate setting Federal Open Market Committee showed division about when to begin to reduce the Fed’s balance sheet, which has been swollen by asset purchase programs. The USD weakness seen in the wake of the minutes may have been due to the increased concern policymakers expressed about soft inflation figures, which meant the committee could afford to once again be “patient” with further rate hikes. Today at 13:30 BST weekly Unemployment Claims will be released alongside the Philladelphia Federal Reserve’s Manufacturing Index, followed by Capacity Utilization and Industrial Production at 14:15 and the CB Leading Index at 15:00.
CAD While the rest of the G10 was mostly making inroads versus USD yesterday, the loonie sold off, amid the commencement of NAFTA renegotiation talks. Crude oil prices deteriorated further, as a big decline in inventories was weighed and found lacking against a massive increase in output, which reached the highest level since July 2015 according to the US Energy Information Administration. Today at 13:30 BST Manufacturing Sales figures were released.
- FT: Fed divisions on show in latest minutes Some members were ready to announce unwinding of balance sheet in July. Federal Reserve policymakers were split over when to announce a start date for the US central bank’s unwind of its crisis-era stimulus and divided over what low inflation should mean for interest rates, according to the minutes of their last meeting. Several members of the Federal Open Market Committee were ready to announce a start date for shrinking the Fed’s $4.5tn balance sheet last month, but they were outnumbered by those who preferred to wait, the record of the July 25-26 meeting revealed. The minutes, released on Wednesday, were seen as slightly dovish by some economists, even if they did not significantly change the outlook for monetary policy. Coupled with the effect of fresh controversy over President Donald Trump’s remarks on Charlottesville, US bond yields and the dollar were lower on Wednesday.
- Reuters: British consumers try to cut costs at fastest pace in two years More Britons tried to rein in their spending in the second quarter of this year than at any time since 2015 as rising inflation squeezed household incomes, according to a survey published on Thursday. Some 53 percent of Britons scrimped between April and June – the highest proportion since 56 percent did so during the same period of 2015, market research firm Nielsen said. This marked a swing back towards household cost-cutting over the course of the past year, which had been at its lowest level on record – 40 percent – in the two months after the Brexit vote in June 2016. But sterling’s sharp depreciation in the immediate aftermath of the referendum – making imports more expensive – has pushed up shop prices at a time when wage growth is largely stagnant. Official data published on Wednesday showed that wage growth fell by 0.5 percent in real terms in the three months to June.