Morning Report: 25 July 2017

25th July 2017 By: Ranko Berich

GBP Sterling traded up against EUR and USD yesterday, amid soft data in the eurozone and still escalating political tension in the US. No major sterling moving headlines were released, although the Office for National Statistics released data on “shrinkflation”, the phenomenon of shrinking package sizes for items. The analysis showed that thousands of items have been subject to the phenomenon for years, but interestingly that Brexit was not a noticeable factor in accelerating the trend. Yesterday’s only other major development was the International Monetary Fund downgrading its forecast for growth in 2017 to 1.7% – hardly a surprise for anyone who has been paying even the slightest attention to recent UK data. Today at 11:00 BST the Confederation of British Industry will release the results of its Industrial Order Expectations survey.

EUR Yesterday’s slightly soft survey data appeared to cause the single currency to waver somewhat, with EURUSD and GBPEUR both reflecting marginal euro weakness. The Purchasing Managers Indices for the Manufacturing and Services sectors in France, Germany and the eurozone all remained solidly in growth territory, but almost all fell short of expectations. However European Central Bank Executive Board member Yves Mersch made some interesting comments in a speech, saying that advances in technology which reduce costs in areas like IT and logistics may be holding down inflation, although he did expect steady increases in price pressure over the next few years. Mersch also said the labour market may prove capable of generating inflation earlier in the eurozone recovery than previously expected. This has hardly been the experience in the UK and US, where inflation has remained stubbornly low even as unemployment has plunged to multi decade lows. Today at 09:00 BST the widely followed IFO Business Climate Survey will be released for Germany.

USD USD had a uneventful start to the week overall, drifting slightly lower against GBP while falling back from multi year lows against the euro. A lack of any major new constitutional or political drama may have been a factor, after a week of escalating turmoil engulfing the Trump administration. A number of US data releases are scheduled today, ahead of tomorrow’s important rate announcement from the Federal Reserve. House Price Indices from S&P as well as the FHFA will be released at 14:00 BST, followed by CB Consumer Confidence figures at 15:00 and the Richmond Manufacturing Index.

CAD Yet another strong data release saw the loonie once again reach a fresh high against the US dollar yesterday. Wholesale Sales rose 0.9% in May, after a 0.8% increase previously, reaching a record nominal high, with almost all of the item categories experiencing growth across eight provinces. The release further demonstrates the robust state of the Canadian economy from a demand perspective.

UK news

  • Reuters: It’s official – sweet-toothed Britons hit hardest by ‘shrinkflation’. Over 2,500 household items are smaller now than they were in 2012, the Office for National Statistics said in a report on the trend among food producers and other manufacturers of offering consumers less for the same price in response to higher raw material costs. However, the impact on Britain’s official inflation measures was only noticeable for sugar, jams, syrups, chocolate and confectionary, contributing 1.22 per cent to the rate of inflation of sweet items since 2012. Brits with a sweet tooth might find the news a bit hard to swallow. It comes after cuts over the past year to the size of some of the UK’s favourite chocolates, including Toblerone and Mars products such as Maltesers. The ONS also said there was no noticeable change after last year’s referendum decision to leave the European Union which hit the value of the pound and made imports more expensive. Shrinkflation existed before the Brexit vote with manufacturers putting it down to the rising cost of raw materials, it said.
  • Reuters: UK households face sharpest squeeze in three years – IHS Markit. British households’ financial situation has deteriorated at the fastest rate in three years this month, as families increasingly shy away from big purchases like cars, holidays and household appliances, a survey showed on Monday. Financial data company IHS Markit said its monthly Household Finance Index dropped to 41.8 from June’s 43.7, its lowest since July 2014, reflecting an ongoing squeeze on household incomes as inflation rises faster than wages. “There are signs that squeezed household budgets and worries about earnings have started to spill over to consumer spending patterns,” said Tim Moore, a senior economist at IHS Markit.