Morning Report: 29 June 2017

29th June 2017 By: Ranko Berich

GBP Sterling surged to a fresh post-election high against USD yesterday after Mark Carney said that he was prepared to raise interest rates if economic circumstances justified it, particularly business investment. The statement from the Bank of England Governor was the central banker equivalent to saying he would put away his umbrella if it stopped raining, but was taken as hawkish by markets, which promptly went into a sterling buying frenzy. The statement should be taken with a healthy grain of salt, as a slowdown in growth and economic activity will put any policy normalisation on hold. Bank of England Money and Credit figures will be released today at 09:30 BST, with the consumer debt elements being particularly relevant after the BoE’s warning about rising debt levels earlier in the week.

EUR The euro saw further, sharp gains versus USD yesterday, despite European Central Bank “sources” doing their best to water down the impact of ostensibly hawkish comments from ECB President Mario Draghi on Tuesday. Draghi’s comments on Tuesday about “reflationary” forces triggered a euro surge, but, as we had indicated in yesterday’s Morning Report, in the afternoon media reports began to emerge from the ECB that the market was misinterpreting the comments. The euro duly sold off, but was soon on the front foot again, and as of this morning has broken through to new highs, with markets seemingly happy to conclude that the ample signs of smoke indicate a nascent flame of hawkishness somewhere within the ECB. GfK Consumer Climate figures this morning have followed yesterday’s investor sentiment survey higher, suggesting a particularly robust German economy. German inflation data will be released on a regional basis throughout the morning, culminating in nationwide figures at 13:00 BST.

USD With supposedly hawkish central bank surprises shaking up the euro and sterling this week, the dollar has become something of a punching bag for G10 FX, and yesterday was no exception. Yesterday’s data included a larger than expected print for Wholesale Inventories, suggesting weaker than expected retailer demand in May, and a contraction in Pending Home Sales. Today at 13:30 BST final Gross Domestic Product growth figures for Q1 will be released alongside weekly Unemployment Claims.

CAD A surprise build in crude oil inventories and fall in oil spot prices was no barrier to further loonie appreciation yesterday, as Stephen Poloz continued the Bank of Canada’s signalling campaign with further hawkish statements to media. The Bank of Canada governor told CNBC that rate cuts appeared to have “done their job”, with the past tense implying, as he also said implicitly, the economy was in increasingly good shape. Steps towards policy normalisation now seem quite possible in Canada in the near term future, meaning Bank of Canada meetings will become far more high impact events for the loonie.

UK news

  • FT: Dollar index at lowest level since Trump’s election. Broad weakness for the dollar has taken the index tracking the world’s reserve currency back to its lowest level since October, as investors’ reassessment of the outlook for global monetary policy leaves it looking vulnerable. Here are the numbers on the embattled DXY: It’s down 6.2 per cent on the calendar year Since Donald Trump won the White House, it’s down 2.1 per cent This week, it has fallen 1.4 per cent.
  • FT: Canada oil output threatens to derail Opec plan. Earlier investments set to keep pushing production higher for at least next 18 months. Goldman lowers short-term WTI forecast to $47.50 a barrel. Canada’s oil output is expected to increase by 270,000 barrels a day in 2017, adding to pressures on Opec that also include surging US shale production. As Opec glares at the surge in US shale production that is threatening to derail its attempt to balance the oil market, it may also want to cast an eye north. Canada, home of the world’s third-largest oil reserves, might have seen producers slash capital spending during the three-year-old oil decline, but earlier investments in the country are set to keep pushing output higher for at least the next 18 months.