Daily Market Report 18/08/15

Comments made yesterday were incredibly hawkish surrounding interest rate hikes in the UK. The most notable coming from Bank of England member Kristin Forbes, who said that a rate hike is needed ‘’well before’’ inflation reaches 2% and that the correct timing of such a move would be dependent on further evidence prices are on course to reach the target.

Forbes also added that raising rates too early would dampen investment and demand, but also added that withholding a hike for too long could lessen the effectiveness of the economic recovery. Departing Bank of England member Miles also said that the case was building for a rise in Bank rate despite current low inflation. Even though inflation is still low, it does appear that the Bank of England are becoming more bullish with regards to their interest rate hikes.

In a day of relatively light economic calendars for all currencies, the only notable piece of data was the Eurozone trade balance. The figure came in at a surplus of €21.9b against a €21.3bn consensus, which was in fact the highest reading seen in the last 6-months. This has mostly been down to the recent weakness of the EUR, proving attractive for exporters  of EU goods. The month-on-month figure showed a 1.4% increase in exports, and exports from the single currency area to the rest of the world rose 12% to €182.7bn in the year to June.

In other news, German Chancellor Angela Merkel said that there is clarity there cannot be a Greek debt haircut but added there’s room for an extension of Greek debt maturities. Angela Merkel and Wolfgang Schaeuble have urged German MPs to back the Greek bailout ahead of a Bundestag vote on Wednesday. She also said the International Monetary Fund (IMF) is likely to contribute money, in autumn, to the €86 billion aid programme. The vote on Wednesday is essential a vote by German government to accept the terms of the bailout proposal to be given to Greece. Merkel’s grand coalition has 504 MPs in the 631-member parliament. About 60 of them rebelled in an earlier vote on Greece in July, and with rumours circulating that the rebels’ ranks could grow to more than 120 this time around.

The latest housing market index from the National Association of Home builders came in at 61, matching expectations. The index remains at the highest level since November 2005, and has registered above 60 for three straight months cooling US property market concerns. On another note, manufacturing activity in New York state plunged to its weakest level in August since 2009 due to steep drops in new orders and shipments, although optimism on future business improved U.S. manufacturers have been struggling with a variety of headwinds, including weak overseas economies in Europe and China, that have cut into exports. The dollar has also risen about 20% in value in the past year, which can also reduce exports by making them more expensive. Cheaper oil, meanwhile, has reduced demand for steel pipe and other drilling equipment.

Key Announcements:

09:30 – GBP: Consumer Price Index (YoY) expected to remain unchanged at 0%.