Daily Market Report 25/05/16


Sterling made gains yesterday against all major currency pairs amid signs that the campaign to keep Britain in the European Union is gaining strength.

Bank of England Governor Mark Carney defended his decision to flag the risks of leaving the EU, hitting back at one of his toughest critics of trying to undermine the Bank. Carney said the outcome of the June 23 referendum could require the BoE to reassess how it sets interest rates, something it needed to explain to businesses and households. "It's important not just for those in financial markets to understand that, but it's important also to be straight with the British people about that," he said.

In a separate report, the Office for National Statistics said public sector net borrowing, excluding state-controlled banks, totalled £7.2 billion pounds in April. Consensus was for a print of £6.6 billion. The figures will not make for good reading for Chancellor George Osborne, as he had pledged to reduce national debt as a share of GDP. Both the Treasury and Bank of England say the economy is suffering from uncertainty about the outcome of the referendum.


The ZEW Indicator of Economic Sentiment for Germany has declined slightly in May 2016. The index has decreased by 4.8 points compared to the previous month, now standing at 6.4 points. "The strong growth of the German economy in the first quarter of 2016 appears to have surprised the financial market experts. However, they seem not to expect the economic situation to improve at the same pace going forward. Uncertainties regarding developments such as a possible Brexit currently inhibit a more optimistic outlook," says Professor Achim Wambach, President of ZEW.
Sentiment concerning the economic development of the Eurozone has also dropped. The ZEW Indicator of Economic Sentiment for the Eurozone has decreased by 4.7 points to a reading of 16.8 points. Previous reading was 21.5 with a consensus for a reading of 23.4, the Eurozone sentiment figure further compounds the gloomy outlook for the region.


Purchases of new homes in the U.S. increased in April to the highest level since 2008, pointing to a strong spring season for construction sector. Commerce Department data showed sales jumped 16.6 percent to a 619,000 from a previous figure of 531,000. Forecast was for a figure 521,000. The rebound in purchases signals housing was returning to more stability, helped by healthy employment gains and cheap borrowing costs. The number of homes sold and not yet under construction climbed to the highest level since May 2007, indicating home building will help add to economic growth.

Key Announcements

09:00 - EUR: German IFO Business Climate – expected to rise to 106.9 from 106.6

14:45 - USD: US Markit Services PMI (Preliminary) expected to improve from 52.8 to 53.1