Morning Report: 25 August 2017

25th August 2017 By: Ranko Berich

GBP Sterling managed to shrug off the release of worrying revised growth data for the second quarter to close largely unchanged against the greenback and euro, although some intraday volatility was seen. Yesterday’s GDP data showed economic growth unchanged at 0.3% up on the quarter, but the details of the report were concerning. Specifically, Business Investment remained flat both year on year and month on month, suggesting that investment is not picking up the slack left by weaker consumer spending, as the Bank of England had hoped it would in the latest Inflation Report. This may change if and when sterling weakness finally translates into a boost for exporters, but there was no sign of such a development in yesterday’s data.

EUR The euro drifted only slightly downwards against USD yesterday, ahead of today’s much anticipated central banker speeches at the Federal Reserve’s Symposium at Jackson Hole, Wyoming. Mario Draghi will speak at 20:00 BST, and although European Central Bank sources have already denied that the ECB President will be announcing any significant policy details in the speech, the tension between various camps on the ECB’s governing council is such that even subtle hints could have market implications. This morning’s data has included German Gross Domestic Product, which was confirmed to have grown 0.6% on the quarter, with strong consumer spending contributing to the growth. The IFO Business Climate survey was also released this morning for Germany, beating expectations and remaining close to record highs.

USD The stakes are possibly even higher for USD than EUR heading into today, with Federal Reserve Chair Janet Yellen scheduled to speak at 17:00 BST. USD has sold off heavily in recent months on plummeting expectations that Yellen’s Fed will continue on its rate hike cycle in immediate future, due to sustained lukewarm inflation. President Donald Trump made yet another series of extraordinary statements on Twitter, attacking Mitch McConnell and Paul Ryan over the prospect of debt ceiling negotiations failing. The US Treasury is likely to run out of money around October, meaning the arbitrary legislative limit imposed on the nominal level of government debt must be raised by then. A failure to do so – or even the possibility of a failure – would represent a major risk for USD. Before today’s central banker speeches, Durable Goods Orders will be released at 13:30 BST.

CAD Yesterday saw the loonie continue to strengthen against USD, despite a lack of headline data. Similarly no headline Canadian releases are scheduled today, and attention will be intensely focussed on the afternoon and evening’s central banker speeches at the US Federal Reserve’s Jackson Hole Symposium.

UK news

  • Reuters: UK shop sales slide unexpectedly in August, retailers’ mood downbeat British retail sales growth slowed in August at the fastest pace in more than a year as the squeeze on consumers from rising prices continued, according to a survey on Thursday. The Confederation of British Industry’s (CBI) monthly retail sales balance slid to -10 in August from +22 last month, its lowest since July 2016 – just after Britons voted to leave the European Union. The reading was far below even the lowest forecast in a Reuters poll of economists, all of whom expected only a modest slowdown in growth. While retailers expected sales to pick up again next month, they were downbeat about the current business situation.
  • FT: Theresa May to force reporting of pay gap between bosses and workers Plan to put downward pressure on boardroom salaries falls short of radical reform. Theresa May will attempt to put more downward pressure on boardroom pay next week by forcing listed companies to publish the ratio between the total remuneration of the chief executive and their average UK worker. A long-awaited package of reforms on corporate governance is also expected to create a register of those companies in which there has been a protest by 20 per cent of shareholders over executive pay. Mrs May believes the proposals will make good on her promise to tilt the balance in the economy away from an elite of high earners — or “citizens of the world” — towards ordinary workers.