Market Drivers June 13, 2017
- UK CPI bit hotter
- Loonie remains bid
- Nikkei 0.01% DAX 0.47%
- Oil $46/bbl
- Gold $1264/oz.
Europe and AsiaUK: CPI 2.6% vs. 2.4%EUR: GE ZEW 18.6 vs. 21.5
North AmericaUSD: PPI 8:30
Cable and loonie were the stars of early European trade rising against all other majors while the rest of the field was generally quiet in steady uneventful trade. Hotter UK inflation data helped to propel pound through the 1.2700 figure as CPI printed at 2.6% versus 2.4% eyed but PPI was a tad cooler at 2.8% versus 2.9%. Prices were driven higher by the rise in housing which was somewhat offset by the decline in energy costs suggesting that pricing may come down in months ahead. Still, UK inflation is running well above BOE’s target of 2% as lower pound continues to exert inflationary pressures on the system.
Governor Carney will no doubt talk down the most recent data noting that these pressures are temporary, but the UK central bank will be hard pressed to increase accommodation against such an inflationary background. Tomorrow the market will get a look at UK employment data and most importantly wage growth figures. If those come in below the 2.4% projected it will again confirm that real wages in UK are actually shrinking which does not bode well for spending. Cable quickly receded from its highs giving up the 1.2700 figure but remained bid near the highs of the day.
The pair remains on its back foot after the UK election and as we noted earlier if the eco data this week proves disappointing the pair could break the 1.2600 figure and set its sights on key support of 1.2500. Meanwhile loonie remained well bid making its way towards the 1.3250 level in the wake of surprisingly hawkish comments from Deputy BOC Chief Wilkins. In a speech in Winnipeg she noted that:
“As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required.”
The market was not anticipating any tightening until 2018, so Ms. Wilkins comments caught traders off guard as they dumped USD/CAD in late US session and continued to sell the pair steadily in Asian and European session. Still, the drop in the loonie has been so swift that the pair may find a pause at the 1.3200 level which remains key support for now. In North America today, only PPI is on the docket which is unlikely to move the market much unless it varies greatly from expectation. Price action is expected to be generally subdued as traders prepare for Super Wednesday when a slew of economic data will be released followed by the FOMC meeting.