Morning Report: 19 September 2017

19th September 2017 By: Ranko Berich

GBP Sterling pared back some of its recent progress against the US dollar yesterday, as Mark Carney added a spot of finesse – or ambiguity – to last week’s hawkish central bank rhetoric. The Bank of England Governor maintained the general tone of last week’s hawkish Monetary Policy Committee Minutes and subsequent speeches, including perennial statements about limited and gradual rate hikes, but added that in a situation of rising global interest rates, the BoE would have to raise rates in order to be maintaining the same degree of accommodation. The statement muddies the water slightly for sterling bulls, and some profit taking was seen late in the session following Carney’s speech. Elsewhere, the UK’s governmental politics remained in a state of farce, with various branches of the executive jockeying for position and public attention over Brexit, to little discernible currency effect.

EUR The euro traded sideways yesterday, but has strengthened substantially overnight. Yesterday’s headline data was limited to an on-expectations print for eurozone Consumer Price Index inflation. This morning’s data has included the eurozone’s Current Account, which showed a slight increase, although nothing major. Today at 10:00 BST the widely followed ZEW survey will be released, with most analysts expecting an improvement in the widely followed German index.

USD USD made inroads versus sterling yesterday, but has taken a major hit against the euro overnight. Yesterday’s data included a softer than expected print for the NAHB Housing Market Index. This afternoon, at 13:30 BST, more substantial housing market data will be released in the form of Building Permits, Housing Starts, alongside Import Prices and the Current Account. Donald Trump continued his extended programme of walking back campaign positions yesterday, giving a reasonably conventional speech to the United Nations in New York, saying the organisation has “truly noble goals”, but needed reform. The speech marks a noticeably more positive approach to the United Nations than previous statements, which in the past have included criticism of “cheap 12 inch sq. marble tiles” at the organisation’s headquarters in New York.

CAD The loonie was subject to a dramatic verbal intervention yesterday by the Bank of Canada’s Tim Lane, and sold off heavily. The BoC Deputy Governor, speaking in Saskatoon, said that recent loonie strength would be taken into account by the Bank when setting policy in the future. The statement is an explicit warning to those expecting further hikes in the immediate future as a matter of course, and raises the stakes for today’s Manufacturing Sales release at 13:30 BST.

UK news

  • FT: Theresa May moves to tighten grip on Brexit process. Prime minister shakes up negotiating team and rebuffs Johnson intervention. Theresa May has moved to tighten her grip on the UK’s disjointed Brexit operation, shaking up her negotiating team and dismissing efforts by her foreign secretary, Boris Johnson, to push her towards a hard exit. Mrs May seized full control of Brexit talks by making Olly Robbins, previously head of the department run by her chief Brexit negotiator David Davis, answerable only to her and belittled Mr Johnson’s weekend treatise advocating a swifter, cleaner break from the EU. “This government is being run from the front and we all have the same destination in our sights,” Mrs May said at a news conference with her Canadian counterpart, Justin Trudeau, in Ottawa.
  • Reuters: Bank of England’s Carney sees Brexit pushing up inflation, slowing growth. Bank of England Governor Mark Carney said on Monday that Brexit is likely to hurt Britain’s growth prospects in the short term and push up inflation as the country adjusts to life outside the European Union. In the short term, the weakening of trade ties with its EU partners would not be offset by new agreements with other countries, he said, as he repeated his argument from last week that interest rates would probably need to rise soon. “This makes Brexit, relative to the experience of the past half century, unique,” Carney said in a speech at the International Monetary Fund’s Washington headquarters. “It will be, at least for a period of time, an example of de-globalisation, not globalisation.”