Daily Market Report 13/09/2013

The pound was relatively unchanged yesterday after Mark Carney once again reiterated the point that interest rates will not rise until unemployment improves further.

Speaking in Westminster yesterday morning, Carney defended his monetary policy measures, stating that Forward Guidance is reinforcing the economic recovery. Carney also confirmed that interest rates will be raised first before the BoE begins thinking about tapering of its quantitative easing program.

In a similar fashion to Mario Draghi’s speech last Thursday, Carney was quite keen to downplay the over enthusiasm amongst investors over the prospects of the UK economy. Whilst he acknowledged the prospects of sustainable growth, he was quick to reiterate that it is the job of the BoE to make sure that recent data is not a ‘false dawn’ and that markets weren’t getting too ahead of themselves.

This has been fairly evident in the markets considering that sterling has been one of the best performing currencies amongst its peers in the past six months. And whilst some analysts are expecting unemployment to improve sooner; Carney reaffirmed his three year forecast for the unemployment rate to fall to 7%, the all-important threshold that would signal interest rates to be raised.

Elsewhere, euro zone industrial production fell 2.1%; it’s lowest since April 2010 dampening demand for the single bloc currency.

Whilst the US received some good in the afternoon, as the number of people filing for jobless claims fell by 31,000 from the previous week; the US dollar remains underpinned by the Fed’s monetary policy meeting next Wednesday. Whilst expectations are for the monthly bond purchases to fall by US$10bln, monetary policy is expected to remain loose and accommodative depending on economic conditions – and it is this that is weakening the US dollar at the moment.

The US will be in focus this afternoon, with retail sales set to have risen by 0.4% in August. Consumer sentiment, measured by the Reuters/Michigan index, is set to fall marginally; but if we see a good print from US retails sales then we would expect the US dollar to strengthen in the afternoon.

Key Announcements:

10.00am – EUR – Employment Change (Q2): Expected to fall to -0.2%.

13.30pm – USD – Producer Price Index (Aug): Expected to show an increase of 1.2%.

13.30pm – USD – Retail Sales (Aug): Expected to have risen by 0.4%.

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index (Sep): Expected to fall to 82 from the previous month.

15.00pm – USD – Business Inventories (Aug): Expected to have risen by 0.2%.