Morning Report: 18 August 2017

18th August 2017 By: Ranko Berich

GBP Sterling is flat compared to this time yesterday morning against the US dollar and the euro, despite seeing another fleeting burst of strength yesterday. July’s Retail Sales figures were solid across the board, but did contain plenty of downwards revisions that mean the data is not as good as the headline figures would suggest. UK Retail Sales beat expectations and jumped 0.3% in July, 0.5% excluding Auto fuel, but last month’s figures were revised downwards by 0.3% for both releases.

EUR The euro was briefly on the back foot against USD yesterday, weakening throughout the morning, but has since recouped almost all of its losses. Eurozone Consumer Price Index data confirmed headline inflation remained at 1.3% year on year in July, or 1.2% excluding volatile items like fuel. Both measures are well below the European Central Bank’s 2% target, a major theme of the latest meeting minutes from the European Central Bank which were also released yesterday. The minutes showed that the ECB was increasingly taking note of improving conditions in the eurozone, but remained unconvinced that the process was sufficiently self-sustaining to withdraw monetary accommodation, which it warned would remain necessary. Additionally, there was clearly concern among members about the difficulty of acknowledging good news in the eurozone without causing undue tightening in financial conditions or excessive euro strength.

USD USD is trading slightly down on a broad basis this morning, following losses on equity markets and a sharp increase in VIX, the S&P500 option volatility index popularly viewed as a barometer of fear in US markets. Hand wringing continued in the media over the embattled Trump administration, including but not limited to Trump’s response to riots in Charlottesville and yesterday’s terror attacks in Barcelona, as well as speculation about the possible resignation of Gary Cohn, the administration’s Chief Economic Advisor. US data, which included surprisingly low weekly Unemployment Claims and a solid print on the Philly Fed Manufacturing Index, was largely ignored. Two regional Federal Reserve Bank presidents, Neel Kashkari and Robert Kaplan, both seemed to advocate caution in raising interest rates further, with Kashkari also mentioning problems with the US debt ceiling as a factor the Fed will consider in beginning to unwind its balance sheet.

CAD The loonie recovered some of its lost ground against the dollar yesterday, and continues to do so today morning after a short retracement last night. The correlation between USDCAD and crude oil prices remain very weak. News this week emerged that Iran could abandon the nuclear deal if the US continues to push new sanctions. Should the Iranian threats materialize, the country could be the target of new bans on crude oil, which could boost prices as supply is constrained. Inflation data is released at 13.30 BST.

UK news

  • FT: Steve Bannon and Gary Cohn in White House power struggle Defenders of Trump’s stance on nationalism square up to moderates over policy. Longstanding divisions in President Donald Trump’s White House burst into the open on Thursday, with defenders of his response to white nationalists facing off against the administration’s moderates. On Thursday, the administration was forced to dismiss reports that Mr Cohn planned to leave the administration following Mr Trump’s much-criticised remarks about the violence in Charlottesville and an interview with Mr Bannon in which the chief strategist attacked his White House rival. People close to Mr Cohn denied reports that he intended to quit even though he had been offended by Mr Trump’s remarks, which appeared to equate the actions of white nationalist demonstrators with those of counter-protesters in Charlottesville.
  • Reuters: British retail sales slow in July after strong second quarter British retail sales growth slowed broadly as expected in July after a strong second quarter, as shoppers cut back on purchases of most goods other than food, adding to worries about a fall in consumer demand caused by higher inflation. Year-on-year retail sales growth dropped to 1.3 percent in volume terms, down from 2.8 percent in June, the Office for National Statistics said on Thursday, a shade lower than the 1.4 percent rise forecast by economists in a Reuters poll. Looking at the three months to July as a whole, which smoothes out monthly volatility in the data, annual sales growth was the weakest since November 2013 at 1.8 percent.