Morning Report: 13 September 2018

September 13, 2018

GBP. Sterling nervously stayed near the lower end of the G10 currency board as messages about Brexit from both sides of the Channel were mixed. European Commission President Jean Claude Juncker managed to buzz the Brexit sentiment by serving comments to media that the EU stands ready to “work day and night” to secure a deal with the UK. Brexit Secretary Dominic Raab then stepped in to sober up conceptions about how amicable the negotiations are proceeding by coming with his harshest rejections of a divorce bill being paid by the UK in case of a no deal outcome. This pours cold water over Chief European Union Negotiator Michel Barnier’s positive perspective of last week in which he foresaw a deal to be struck in a matter of 8 weeks. Today at 12:00 BST a new Monetary Policy Summary and Rate Statement will be published by the Bank of England, with some reasons to expect a positive tone as the economy is doing OK and wage growth is keeping up with BoE expectations. The next rate hike is expected around May 2019 after the BoE raised rates in its previous August meeting.
EUR. Euro resided anonymously in the middle of the G10 currency board yesterday, with losses against strongly performing resource driven currencies like NOK, AUD and CAD, but gains against USD and GBP. Industrial Production contracted sharper in July than anticipated at -0.8%, while the June reading was also adjusted downwards. Italy’s Second Quarter Unemployment rate came in marginally better than expected at 10.7%, while the first quarter reading saw a downward  adjustment as well. This is a positive message about the Italian economic situation amidst uncertainty about how its fiscal position will develop under its new government, although the Unemployment rate remains among the highest in Europe. Today the European Central Bank announces its newest Main Refinancing Rate at 12:45 BST, followed at 13:30 by a press conference. Our forecast is foran unchanged rate, with some chances of ECB President Mario Draghi raining down some dovish rhetoric on the outlook for ECB’s future monetary policy path.
USD. USD had a complete off day, not only losing out against the entire G10 currency board, but also suffering from a stroke of weakness against most major Emerging Market currencies. A combination of factors may be at play here,  like US Trade Secretary Steve Mnuchin extending an invitation to China for renewed trade talks, a massive hurricane heading towards the East coast where it will disrupt the economy and a soft Producer Price Index at – 0.1% for August, below the 0.2% rise expected. Today sees the Consumer Price Index as the most important data release at 13:30 BST, with Federal Reserve speakers Randal Quarles speaking at 15:00 and Raphael Bostic following at 18:15.
CAD. The loonie was one of the outperformers yesterday thanks to Brent Crude Oil prices that shortly peaked above $80 a barrel, close to the three year highsfrom May this year. The Q2 Capacity Utilisation Rate meanwhile showed tightness in the industrial sector is rising slower than expected with a print of 85.5%, although this is still distinctively higher than the 83.7% score of Q1. The National House Price Index will be published at 13:30 BST for which a small rise is expected, as sales volumes are up again after slumping earlier in the year.

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