Morning Report: 21 June 2017

21st June 2017 By: Ranko Berich

GBP Sterling never recovered from the impact of yesterday’s early morning speech by Bank of England Governor Mark Carney at Mansion House, ending the day down almost a full percentage point against the dollar. The speech had been postponed a week due to the Grenfell Tower tragedy, but Carney did not hold back in expressing his apprehension over the future of the UK economy. Specifically citing concerns over falling wage growth- and its knock-on effect on reducing consumer spending- and the potential negative impact of Brexit, Carney stated that the prospect of “tighter financial conditions” meant that now was not the right time to start looking at interest rate hikes. Today’s calendar is light on data, with only Public Sector Net Borrowing figures due for release, at 9:30 BST.

EUR The euro took a slight fall against most of its counterparts yesterday, but under the influence of an empty calendar moves have been limited. German Producer Price Index numbers did come out slightly lower than expected, as did the German Current Acccount surplus was, but it didn’t throw the euro too far off course. A point worth mentioning is the spread between Italian and German bonds, which is now at its lowest point since January. This difference between prices of the two bonds is considered a strong indicator of risk appetite in the market, with the perceived safety of German bonds contrasting with the perceived high-risk status of Italian bonds. The difference in pricing fell as news was released that the Italian parliament will not follow through with its controversial electoral reform law, further reemphasising that market confidence in Europe continues to increase. Despite this, we should remain cautious that two Northern Italian banks, Veneto Banca and Banco Populare di Vicenza, remain in deep trouble, and thus further market turmoil on the horizon does still remain. The European Economic calendar is rather slow today, with only a sale of German 30 year bonds being a somewhat notable event.

USD USD showed a minor plus against a basket of major currencies yesterday, with markets still contemplating what to make from the surprisingly hawkish Federal Open Market Committee last Thursday. According to the Federal Reserve’s official forecasts, another rate hike is expected this year, but the prices of dollar futures tell us market participants estimate the chance of this really happening is only around 50%. A narrative arising is that even though growth and inflation in the US are lagging, monetary policy has been accommodative for such a long time that the Federal Reserve must pare back its expansionary policies now before damaging financial bubbles do arise- something that does already seem to happening with student loan and car debt bubbles. May Existing Home Sales numbers and Crude Oil Inventories will hit the ether today at 14:00 BST and 15:30 BST respectively.

CAD The price of oil has been trimmed by 16% in the last month and is experiencing an acceleration of a price decrease in the last three days, being down 4.5%. The CAD usually follows suit on the direction of the oil price movements, just as is happening now. It has been losing ground against the dollar for the last two days. Canada itself has an empty economic calendar for the day ahead, so its movements will be mostly determined by what their main trade partner US and the dollar do.