Morning Report: 8 September 2017

8th September 2017 By: Ranko Berich

GBP Sterling made inroads against the beleaguered US dollar and sold off against the euro, but on the whole the pound was out of the spotlight yesterday. Aside from the Halifax House Price Index, which showed annual house price growth pickup up across the UK, no headline data was released. Today’s calendar is significantly livelier, with Industrial Production data due for release at 09:30 BST alongside the Goods Trade Balance and Construction Output. The British Chambers of Commerce published its latest quarterly forecasts today, and warned that there was “no sign on the horizon of a return to healthier levels of growth”, noting that the economy had not yet positively reacted to sterling’s fall since last year’s referendum. Indeed last month’s Goods Trade Balance figures showed no sign of exports beginning to surge, although such a welcome development is a possibility in this morning’s data.

EUR The euro strengthened across the board yesterday, after Mario Draghi’s warnings about euro strength affecting the outlook for inflation were drowned out by increasing expectations that the European Central Bank will announce the end of its Quantitative Easing programme as early as this year. Draghi acknowledged that the euro’s explosive strength this year is a source of uncertainty and worth monitoring, but ultimately this was not enough to hold back the euro bulls, who now have October to focus on as a possible date for either an ECB taper, or a spectacular disappointment. The ECB conditions its inflation forecasts on exchange rates, among other factors, and the fact that the Governing Council had already begun to discuss euro strength at the 1.18 level on EURUSD shows the impact the euro may potentially have on policy decisions- though Draghi did reiterate that the exchange rate itself is not a policy objective. The euro has strengthened relentlessly this year on ever rising expectations of a hawkish ECB, which ironically carries the risk that growing expectations of tapering, delay the tapering itself.

USD USD saw further losses yesterday amid an impending hurricane landfall and the resignation of a senior monetary policy maker. Donald Trump’s backing of a Democratic Party proposal to extend the US debt ceiling through to December, despite heavy opposition from legislative leaders in his own party. But this did little to support the dollar, probably because the lack of co-operation between the White House and Republican lawmakers bodes ill for future legislative efforts. The news, from Wednesday, that Federal Reserve Governor Stanley Fischer would be resigning before the end of his term prompted further concerns about the Fed’s level of understaffing in its top ranks, with four policy making positions currently unfilled. The vacancies represent an extraordinary opportunity for reshaping the general tone of monetary policy, should the White House wish to do so. Today at 13:45 BST the Fed’s Harker will speak, and at 15:00 Wholesale Inventories will be released.

CAD The loonie extended its dramatic gains from Wednesday yesterday and overnight, completely shrugging off weak data readings yesterday. Monthly Building Permits contracted 3.5% in July, after last month’s 4.4% surge, and the Ivey Purchasing Managers Index, a survey based output and optimism measure, fell to 56.3. The reading still represents reported growth, but is significantly lower than the 60.0 level that was reported last month. Given the loonie’s overwhelming strength in recent months, and this week’s hike from the Bank of Canada, the stakes seem high for today’s labour market data, which will be released at 13:30 BST and is expected to show employment edging up, and Unemployment at 6.3%.

UK news

  • FT: ‘No sign’ of return to healthier UK economic growth, BCC warns. Weak pound after Brexit vote does not mean automatic export boom, business group says. The fall in sterling following last year’s EU referendum has failed to boost UK economic growth, the British Chambers of Commerce said on Friday. The business group — which represents thousands of companies employing more than 5m people across the UK — said there was “no sign on the horizon of a return to healthier levels of growth” as it published its latest quarterly forecasts. The pessimistic outlook stems from the BCC’s assessment that the disappointing economic response to sterling’s fall since last year’s EU referendum will continue. Politicians and economists had previously hoped that the weak pound would boost British exports.
  • Reuters: Retail spending surges to two-year high in August – survey. Spending in British shops increased last month at the fastest pace in nearly two years, a survey showed on Friday, as a weaker pound led to more Britons opting to holiday at home and to an influx of tourists from abroad. Britain’s economy has cooled as the rise in inflation since last year’s Brexit vote and tepid wage growth have squeezed consumers’ real earnings. Recent surveys have shown a gradual decline in consumer confidence and discretionary spending. However, accountancy firm BDO said overall UK like-for-like sales values rose 2 percent in August after falling 0.6 percent in July. It was the biggest rise since September 2015 and the strongest performance for the month of August in the last four years.