Sterling slides due to oil price decline

Yesterday’s markets

14th September 2016

  • GBP CPI y/y: 0.6%
  • EUR ECB President Draghi Speaks
  • EUR German ZEW Economic Sentiment: 0.5
  • EUR ZEW Economic Sentiment: 5.4

The Pound slid sharply following a more modest pace of Inflation of 0.6% than the expected 0.7%. Cable dropped below 1.32 and GBP/EUR in and around 1.1730 seeing a drop around 1.5% against both currencies. 

This volatility was also due to a sharp decline in oil prices on lower global demand concerns – this sent global stock markets sharply lower again overnight, with US markets reversing all of the gains of the previous session, as investors shifted their focus towards next week’s Federal Reserve rate meeting. 

On the wages front, yesterday’s CPI numbers were in line with expectations as they remained solidly below the increased Average Earnings figure, which saw an improvement in June’s numbers to 2.3%. This maintained the positive gap between prices and incomes. July’s numbers this morning are expected to show a slight decline to 2.2%, still well above the current level of CPI and RPI. 

With the US Central bank now in a blackout period ahead of the decision next Wednesday, there is little in the way of positive drivers helping underpin the market at this time. However, there was the release of some improved Chinese economic data earlier this week.

 

Today’s markets

13th September 2016

  • GBP Average Earnings Index 3m/y
  • GBP Claimant Count Change
  • GBP Unemployment Rate
  • AUD RBA Assist Gov Debelle Speaks
  • USD Crude Oil Inventories
  • NZD GDP q/q
  • AUD Employment Change
  • AUD Unemployment Rate

We have another day of top tier UK data as Average Earnings, Claimant Count Change and the Unemployment Rate are released at 9.30am. These are expected to be negative with the pace of earnings expansion slowing and the Claimant Count figure improving, albeit, only marginally. With the ongoing and future impact of Brexit still being hotly debated, and Pound volatility high, any significant deviation from this expectation will be jumped upon by the market.   

Later on in the day, US Crude Oil Inventories will be published. Last week’s figure was adversely affected by a plunge in net imports as a result of Hurricane Hermine which prevented ships docking in the Gulf of Mexico. We would expect a normalisation of this figure this week. The significance of this number is the impact it has on the price of petroleum products which affects inflation, but also impacts growth as many industries rely on oil to produce goods. Diminishing inventories would be considered inflationary as the price of petroleum products would be expected to rise, whilst expanding inventories would be considered a boost to industry in the longer run. The figure is expected to continue a modest trend of improvement established since May with inventories forecast to expand.  

The final important data of the day is New Zealand GDP released late this evening around 11:45pm UK time. This quarterly reading is expected to expand from 0.7% to 1.1%.