Morning Report: 20 September 2017

20th September 2017 By: Ranko Berich

GBP Sterling had a quiet day yesterday, trading in a particularly tight range against USD and drifting only slightly lower against the euro. Today is likely to be significantly more eventful, with critical data releases, domestic politics, and a US central bank meeting all on the calendar. This morning’s Retail Sales release is extremely important due to the confidence shown by the Bank of England in assessing the current state of consumption at last week’s Monetary Policy Committee. The MPC was confident enough in consumer spending to signal rate hikes in the near future, but the proof is in the pudding and a miss for this morning’s release at 09:30 BST has the potential to be disruptive for sterling.

EUR The euro once again strengthened against USD yesterday, pushing EURUSD back up towards the three year highs seen in recent weeks. The widely followed ZEW survey was released, with the crucial German Economic Sentiment indicator rising sharply to 17.0, an improvement from last month’s level but below the long term average of 23.8. The improvement in business sentiment is notable due to the looming German election – normally a source of uncertainty. The eurozone index also rose, although by slightly less than expected. This morning’s data has included the German Producer Price Index, which rose a healthy 0.2% in August.

USD USD drifted lower on a broad basis yesterday, extending its losses overnight, ahead of tonight’s Federal Open Market Committee releases. Donald Trump’s speech at the United Nations in New York dominated the headlines yesterday, and although there was plenty of the punchy rhetoric we’ve come to expect from the US President, the speech itself stuck fairly close to traditional US foreign policy. Trump spoke in favour of the UN’s goals and urged reform, while advocating for a rules based international order, and calling out international enemies of the United States such as North Korea and Iran. Tonight at 19:00 BST, the FOMC’s latest rate decision will be released, along with updated economic projections. Market expectations of Fed policy have fallen to rock bottom, and so the bar for a hawkish surprise seems set exceptionally low. Details are expected today about how and when the Fed will begin to reduce the size of its balance sheet, which has been inflated by years of quantitative easing, and so the Press Conference given by Janet Yellen at 19:30 BST will be an opportunity for further market relevant information to come out.

CAD The loonie avoided further losses yesterday, buoyed by higher crude oil prices after Monday’s losses on Tim Lane’s dovish comments. Canadian Manufacturing Sales fell 2.6% in July, the sharpest drop in more than a year and significantly faster than expected by most forecasters. A sharp drop in motor vehicles was the primary driver, and sales rose 0.2% once these are excluded. North American Crude Oil Inventories will be released at 15:30 BST.

UK news

  • FT: Theresa May prepares €20bn EU budget offer Florence speech set to see attempt to tackle European demands on Brexit divorce bill. Germany’s Angela Merkel has been told by the British government to expect Theresa May this week to offer to fill a post-Brexit EU budget hole of at least €20bn, the first attempt by London to meet European demands to settle its divorce bill. Olly Robbins, the prime minister’s top EU adviser, has contacted his counterparts in several European capitals to reassure them Mrs May’s Friday speech in Florence would include the financial offer, according to officials briefed on the discussions.
  • Reuters: UK employers’ optimism falls to lowest since Brexit vote British employers are their most pessimistic about the outlook for the economy since last year’s Brexit vote and want clarity about the departure from the European Union, a survey showed on Wednesday. However confidence in hiring and investment remained stable this month, the survey by the Recruitment & Employment Confederation, representing recruitment firms, showed. “The political climate isn’t helping the situation. Businesses need clarity in order to plan effectively, and so far the Brexit negotiations have not resolved any of the core issues,” REC chief executive Kevin Green said.