Morning Report – Wednesday 2nd September

Main Headlines

British house prices leapt to hit an record high in August, mortgage lender Nationwide said on Wednesday, adding to signs of a sharp rebound in the country’s housing market after the coronavirus lockdown. Prices jumped by 2.0% from July, the biggest month on month increase since 2004 and far outstripping expectations. On an annual basis, prices rose 3.7%.

British retailers discounted their goods a bit more aggressively in August than in July as they sought to get customers back after the coronavirus lockdown earlier in the year, industry data showed on Wednesday. Figures from the Confederation of British Industry published last week showed an unexpected weakening of retail sales in the first half of August, raising concerns that a bounce-back in consumer spending after the lockdown might be short lived.

Asian stocks were mostly higher along with European and U.S. equity futures, led by technology firms that propelled global shares to record highs. Stocks in Japan and South Korea posted modest gains, while China, Hong Kong and India edged lower. Treasury yields edged higher. The Aussie dropped after a below forecast reading for second-quarter GDP. Oil rose, while gold fell.

GBP

The pound touched eight month highs against a broadly weaker dollar in the wake of a new Federal Reserve policy framework that suggests U.S. interest rates will remain at record lows for the foreseeable future. Brexit negotiations remain in deadlock and the market awaits a mid-week speech by Bank of England Governor Andrew Bailey, before the central bank’s next monetary policy announcement on Sept. 17.

EUR

European Central Bank President Christine Lagarde has a new challenge to worry about on top of a fading economic recovery and a slump in inflation – a surging currency. The euro has jumped 12% in just five months since the start of coronavirus lockdowns. Market participants are expecting further gains however, two top ECB officials have acknowledged it could be an issue. ECB’s Philip Lane said the currency’s value “does matter”. The euro’s rise is just one part of a broader story of dollar weakness that has pushed the greenback to its weakest against major peers in more than two years. However, the 19-nation European currency union is particularly exposed because of its relatively heavy reliance on exports and its long record of feeble inflation.

USD

The dollar bounced off two year lows overnight as U.S. data pointed to a firm manufacturing activity. Economic data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two year high in August amid a surge in new orders, with the reading from the Institute for Supply Management highest level since November 2018. The greenback has been declining since last week, down about 1%, after the Federal Reserve announced it would focus more on average inflation and higher employment.

Main Economic Data/Central Banks/Government (BST)

7:00 a.m.: U.K. Aug. Nationwide house prices
8:00 a.m.: Spain Aug. unemployment
10:00 a.m.: Euro-Area July PPI
10:00 a.m.: U.K. sells linkers
10:30 a.m.: Germany sells bonds
2:00 p.m.: BOE’s Bailey, Ramsden and Vlieghe speak
3:30 p.m.: BOE’s Broadbent and Haldane speak
3:30 p.m.: EIA crude oil inventories
6:00 p.m.: ECB’s Weidmann speaks

EU’s Barnier speaks