Morning Report: 24 August 2017

24th August 2017 By: Ranko Berich

GBP Sterling fell to fresh, eight year lows against the euro yesterday, prompting much hand wringing and analysis in the media and financial circles. In reality the drivers that have taken the pound to historic lows have been in place for several months, including economic and political uncertainty, but also euro strength driven by improving conditions on the eurozone, and yesterday’s price action was simply a continuation of this wider trend. This morning’s data has included revised Gross Domestic Product growth for the second quarter, which remained unchanged, but a significant and unexpected slowdown in business investment, which highlights how uncertain the future seems to be for business in the UK.

EUR The single currency received a boost by the European Central Bank’s President Mario Draghi who highlighted the success of the QE programme and the central bank’s forward guidance in a speech yesterday. Markets had become more wary of Draghi after Reuters informed last week that various sources from the ECB warned that Draghi would not change the Eurozone’s monetary policy at Jackson Hole. As a result, markets were expecting a greater degree of dovishness which quickly reversed yesterday. No data will be released today and all eyes are focused on Draghi’s speech tomorrow at Jackson Hole.

USD All eyes are focused on Jackson Hole’s Symposium, which kicks off today. The main events are Yellen’s and Draghi’s speeches tomorrow, although some volatility could kick off today. Robert Kaplan, from the US Federal Reserve, said yesterday he wants to remain patient ahead of supporting further hikes, at the same time he suggested that the Fed should begin shrinking the balance sheet. Over the last few months, a broad consensus has been built among Fed officials to begin reducing the balance sheet size. Opinions on when to hike rates again, however, continue to be divided, even questioning the likelihood of seeing another hike this year. Existing home sales data will be published at 15.00 BST, which will be closely watched after a 9.4% contraction in new home sales month-on-month yesterday.

CAD The loonie (and the Mexican peso) have shrugged off the effects of an increasingly like rupture of the NAFTA, after Donald Trump indicated earlier this week that the free trade agreement would be abandoned at some point in the future. USDCAD trades close to a 2-year low. No data will be released today.

UK news

  • FT: UK Q2 GDP growth confirmed at 0.3%; household spending and business investment growth slows Private consumption growth in the UK slowed further than expected in the second quarter after helping to prop up growth at the end of last year, according to official figures which confirmed the economy expanded by 0.3 per cent. A second estimate from the Office for National Statistics contained no revisions from the preliminary figures released last month, but provided more detail on the different components of growth. Household spending increased only 0.1 per cent over the three months to June, down from 0.4 per cent in the first quarter and worse than the 0.3 per cent growth economists had expected. ONS head of GDP Darren Morgan said the weak pound was “hitting household budgets”.
  • Reuters: EU worker exodus threatens UK food industry, some leaving already Nearly half of businesses operating in Britain’s food supply chain say European Union workers are thinking about leaving because of uncertainty around Brexit, an industry survey showed on Thursday. Food processing makes up the biggest chunk of British manufacturing and relies heavily on immigrants, all though much of debate so far around Britain’s departure from the EU has focused on sectors like car production and aerospace. Forty-seven percent of companies in Britain’s food supply chain — which includes farms, food processors, supermarkets and restaurants — said their EU workers were considering their future as a direct result of the June 2016 Brexit vote, according to the survey compiled by several trade bodies. Nearly a third of respondents to the survey, conducted between March and May, said some EU staff had already departed.