Daily Market Report - 14/05/2015

GBP
The Pound briefly gained across the board yesterday morning when the average earnings came out at 1.9%, far higher than forecast. The figure showed the pay of British workers picked up slightly more than expected in the first quarter, while the unemployment rate fell to its lowest since mid-2008.

The gains were short lived as the UK's growth rates were reduced to 2.5% from a 2.9% prediction in February. Britain was the fastest growing economy in 2014, however the recovery has slowed since the start of this year, with Carney stating that its growth downgrade was because interest rates were likely to increase slightly faster than markets had expected three months ago.  Low inflation has all but removed the opportunity for an interest rate hike this year which did cause a brief sell-off of the pound in reaction to the dovish comments, with hints that rate hikes will now be on the agenda for mid-2016.

analysts eagerly awaiting a hawkish Bank of England Inflation report were left disappointed, with Bank of England governor Mark Carney outlining that inflation is in line with returning to the target in 2 years. 

EUR
With disappointing news coming from both the UK and the US yesterday, the EUR had the opportunity to make considerable gains against its major counterparts for the first time this month, with the single currency gaining 0.9% and 1.4% against the pound and the dollar respectively.

Figures released from Germany showed a slight slowdown in growth, with the quarterly GDP figures coming in at 0.3% against a 0.5% consensus. Although disappointing, the CPI figure beat the 0.4% consensus, with the figure showing a reading of 0.5%. GDP for the Eurozone as a whole came in worse than expected, with a reading of 1% against a 1.1% consensus. Overall the figures from Europe were slightly less than predicted, the fact that most were a slight miss has given analysts some confidence in the stabilisation of the Eurozone. The monetary policy meeting threw up little surprises yesterday, with the only piece of note being a comment from one of the ECB’s economists, stating that the EUR weakness is not surprising considering the ECB’s QE programme. Sources also indicated that the ECB are concerned by the pressure that the Greek government is putting on its local central bank, which outlines that negotiations between Greece and the ECB are far from over. 

USD
Another disappointing figure from the US released yesterday, with US retail sales month-on-month coming in at 0%, missing the consensus of 0.2% and a long way from the 0.9% previous. This is now the fifth consecutive miss for US retail sales, and has also pushed the USD index lower to the tune of 0.7% to a 3 month low. Reductions also occurred on the US growth predictions for Q2, with Barclays and Goldman Sachs both reducing their figures to 2.6% and 2.5% respectively. The market reaction has now seen EUR/USD move to the highest since February, and GBP/USD now at the highest levels since December ’14. Crude oil stocks also released yesterday showing a reduction of 2.19m barrels.

Key Announcements
13:30 - USD - Unemployment claims
13:30 - USD - Producer Price Index
16:00 - EUR - ECB President Mario Draghi speaks

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