May 17 • Morning Roll Call • 2047 Views • 1 Comment on MORNING ROLL CALL

EUR/USD rises by over 1%, to reach November highs, as U.S. dollar enters five day sell off. UK inflation accelerates

In times (long since) past, there was only one headline inflation reading between-the-lines1and analysts and consumers knew and understood the significance. Inflation high; equalled bad news for the household budget. Inflation low; equalled good for the household budget, assuming that your wages were keeping up with, or exceeding inflation. Unfortunately we now have several inflation figures; CPI, RPI, RPI with certain elements taken out, core CPI inflation, producer input PPI, output PPI, non seasonally adjusted, the list often appears to be endless.

On Tuesday the UK’s official statistics agency issued fifteen separate inflation reports. So which is the one consumers should pay the most attention to? The answer is the ‘worst’ reading of the bunch, which ironically is the one which the mainstream media actively plays down; RPI, excluding interest on mortgage payments, the reading came in at 3.8% annually on Tuesday. With wage inflation running at 2.2% and RPI expected to reach 5% by early 2018, if wage rises reduce to 1.5%, with median level wages hardly budging in real terms for close on twenty years, the UK consumer is in serious trouble, as evidenced by the rise in court action versus individuals so far in 2017. County court judgments (versus individual defaulters) are up a stunning 33% YoY, as debt has replaced income in the UK. If base interest rates rise by only 1% in the UK, to counter inflation pressures and the effects of Brexit, then UK consumers will be severely tested.

The ‘good news’ from the UK’s inflation data series, came in the form of producer price input inflation, coming in below forecast at 16.6%. However, that’s over 10% higher than for most of 2016 and will eventually bleed into UK prices domestically; retailers, service providers and exporters will have no alternative, other than increasing prices. Despite the high inflation reading for CPI and RPI, the UK’s FTSE rose by nearly 1,% to close at a record high of 7,522. The mood of optimism failed to cross the channel; France’s CAC closed down 0.21%, DAX down 0.02% and the STOXX 50 index closed flat. However, the Eurozone posted positive data readings on Tuesday; GDP came in as forecast at 1.7% YoY for Q1, the trade balance improved and the various ZEW reading, pertaining to both Germany and the EZ, mainly beat expectations.

In the USA the SPX and DJIA closed flat, after the SPX posted an intraday record high, the NASDAQ closed the day out at another record high. Political issues (courtesy of Trump), appeared to darken investor mood, as the dollar closed the day down versus the majority of its major peers. Housing start data also soured the mood; both housing starts and permits delivered negative numbers, starts down -2.6% and permits down -2.5%, in the month of April.

Versus yen, Swissie and euro the greenback fell on Tuesday; EUR/USD ended up circa 1.2% at 1.108, the highest level witnessed since November 4th. USD/JPY was down 0.7% at 113.09, USD/CHF down circa 1.2% at 0.9855. Oil failed to maintain its momentum gathered over recent days; closing out the day at circa $48.13 a barrel, down approx. 0.7%. Gold continued its (restrained) fourth session rise, after suffering a mean reversion over recent weeks, ending the day at circa $1236 an ounce, up approx 0.5% on the day.

Economic calendar events for May 17th, all times quoted are London GMT time.

08:30, currency impacted GBP. Weekly Earnings ex Bonus (3M/YoY) (MAR). Wage rises are expected to fall to 2.1%, from 2.2%.

08:30, currency impacted GBP. ILO Unemployment Rate (3M) (MAR). The UK’s unemployment rate is forecast to remain unchanged, at 4.7% of the available workforce.

08:30, currency impacted GBP. Employment Change (3M/3M) (MAR), employment is expected to have risen by an extra 22k jobs over the most recent Q1 of 2017.

09:00, currency impacted EUR. Euro-Zone Consumer Price Index (YoY) (APR F). CPI is excited to have risen by 1.9%, ahead of the 1.5% reading in March.

11:00, currency impacted USD. MBA Mortgage Applications (MAY 12). Mortgage applications are predicted to have risen above the 2.4% reading registered in April.

14:30, currency impacted USD. DOE U.S. Crude Oil Inventories (MAY 12). For WTI oil price to maintain its recent momentum, investors will be looking for inventory levels to fall from the previous reading of -5247k.

15:00, currency impacted USD. New York Fed to Release 1Q Household Debt and Credit Report. Investors and analysts will monitor the wording of the report, for any positive economic signs.

23:50, currency impacted JPY. Gross Domestic Product annualised (1Q P). Japan’s GDP is predicted to have risen to 1.8%, from the 1.2% registered in Q4 of 2016.


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