Daily Market Report 13/07/16

GBP

The pound gained as much as two percent yesterday, as political uncertainty seems to have  subsided in the short term as Theresa May edges closer to moving into Downing Street. Further, Governor of the Bank of England Mark Carney was yesterday questioned over his assessment of the implications of Brexit prior to the UK’s vote on June the 23rd as well as his private discussions surrounding this with Chancellor George Osborne.

Carney commented that "the debate cannot be about whether we should have made an assessment. If we view something as the biggest risk, we have an obligation, a statutory obligation, to make that clear to parliament … [and] to the people of the United Kingdom to come straight with them." Carney was also questioned about his decision to reduce the capital buffer needed by banks on their balance sheets. His response was that banks are well capitalised and although we are in a “situation of increased uncertainty” it would lead to more available credit to businesses and households. However, Carney concedes, "we wouldn't represent this as the single silver bullet, it is part, and should be seen, as part of a series of measures, including contingency planning."

Regarding Brexit, Germany is putting Theresa May under pressure to clarify her proceedings for exiting Europe. Chancellor Angela Merkel yesterday remarked that "the task of the new prime minister ... will be to get clarity on the question of what kind of relationship Britain wants to build with the European Union".
 

EUR

European leaders such as Angela Merkel and the Italian Finance Minister Pier Carlo Padoan signalled that a solution to Italy’s banking issues can be found within the confines of current rules. Merkel commented that she is “very convinced the questions that need to be decided there will be resolved in a good way” and that she “doesn’t see any crisis-like development overall.”

In Ireland, the Central Statistics Office released figures that their economy grew by an astonishing 26 percent in 2015. This is largely explained by the fact that Ireland has a 12.5% tax rate and this has fostered a welcoming environment for US corporates to establish their company headquarters there and therefore becoming part of Ireland’s gross national income. This increased corporate activity within the country has as a result helped both Ireland’s national debt and deficit ratios.
 

JPY

The Japanese yen lost significant ground against all of its 31 major peers on Monday, the most since October 2014, as the Japanese Prime Minister Shinzo Abe made clear that he intended to add fiscal stimulus after his party’s win in Sunday’s upper-house elections. The Japanese currency has moved 17 percent upwards this year versus the dollar, despite the Bank of Japan’s asset purchasing program and negative interest rates. This recent drop should help boost exports and stoke inflation amid a slowing global economy.

 

Key Announcements

09:30 – GBP: Bank of England Credit Conditions Survey

13:30 – USD: Import Prices Month on Month expected to fall to 0.6%

15:30 – USD: Crude Oil Inventories