Morning Report: 13 February 2017

13th February 2017 By: Ranko Berich

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GBP.  A surge of USD selling has seen sterling quickly recoup Friday’s losses and then some against the greenback this morning. Friday’s data included Manufacturing and Industrial Production, both of which supported the trend seen in surveys of the sector recently, showing strong increases in output. December Trade data from the Office of National Statistics showed a reduction in the goods trade deficit, driven mainly by an increase in exports. No data will be released today, but two crucial items of macro data will be released this week. Firstly, tomorrow we have the Consumer Price Index. This is a key measure of inflation in the UK economy, and has been given renewed prominence for sterling over recent weeks, given that rising inflation increases pressure on the Bank of England to start raising interest rates. Then, on Wednesday we will see further labour market data. All employment data points are becoming increasingly politically significant, with an article in the Financial Times over the weekend suggesting that the prospect of Brexit is already causing tightening in the labour market, with the report claiming that a quarter of European Union citizens based in the UK are already considering leaving their jobs. This survey, by the Chartered Institute of Personnel and Development, was given added weight by a recent Office of National Statistics report, which showed that there has been a sharp decrease in the influx of EU workers in to the UK since the Brexit referendum in June.

EUR.  The euro is also up against USD this morning, helped along by strong German Wholesale Price Index data. Prices rose 0.8% in January, leaving year on year inflation at 4.0% in the index, underlying the general improvement in price pressure seen in the eurozone’s biggest economy. Tomorrow is a big day for euro data, with German and Italian preliminary Gross Domestic Product figures set for release in the morning alongside eurozone GDP, and the widely followed ZEW Economic Sentiment survey. New EU growth projections will also be released by the European Commission, making tomorrow a key day for the single currency. Political back and forth will also continue between Greece, the IMF, and eurozone creditors this week, ahead of next Monday’s crucial meetings, as the participants look to once again hobble together an agreement to keep Greece from defaulting on debt obligations.

USD. The greenback is under heavy pressure this morning, as market participants weigh the likelihood of a rate hike at the Federal Reserve’s March meeting. Federal Reserve Chair Janet Yellen will testify to lawmakers from the House and Senate on Tuesday and Thursday respectively, presenting the Fed’s latest biannual Monetary Policy Report. The report and her testimony are likely to be highly influential on market pricing of Fed policy in the immediate future. The testimony will be the first since the inauguration of President Trump, raising the prospect of additional acrimony between Yellen and newly emboldened Republican lawmakers looking to score political points.

CAD.  USDCAD extended its downward trend on Friday, and after a brief bounce this morning is threatening Friday’s lows. Better than expected labour market data helped the loonie along on Friday, as Canada’s Unemployment rate fell to 6.8% and net employment jumped by 48,300, the second consecutive month of strong job gains. This Wednesday Manufacturing Sales data will be released.

UK news

Britain’s economy likely expanded 0.7 percent in three months to January – Reuters Britain’s economy likely expanded by 0.7 percent in the three months to January, quickening slightly from the fourth quarter, the National Institute of Economic and Social Research said on Friday. Its estimate follows the publication of industrial output and trade data for December, which underlined the economy’s strong end to 2016. NIESR cited consumer spending and a pick-up in industrial production as the main drivers behind the economy. “Despite our estimates indicating a strong start of 2017, we expect economic growth to soften to 1.7 per cent this year as rising consumer price inflation weighs on consumer spending,” said Oriol Carreras, a research fellow at NIESR.

UK employers start to feel pinch of EU labour shortages – Financial Times More than a quarter of companies say European staff are looking to leave this year. Employers who rely on EU labour including retailers, manufacturers and food producers are starting to feel the pinch of staff shortages, according to new research. A survey by the Chartered Institute of Personnel and Development found that more than a quarter of employers believe EU staff are considering leaving their jobs, and possibly the UK, in 2017.