Morning Report: 01 December 2014

1st December 2014 By: Ranko Berich

GBP After a volatile day of trading on Friday, sterling ended the session slightly weaker against both USD and the euro. The action can be expected to resume this morning, with multiple headline data releases scheduled at 09:30 GMT. The Manufacturing Purchasing Managers Index will be released together with Bank of England money supply and lending data. Manufacturing PMI will be closely watched for any signs of improvement, after a weakening outlook for export demand has seen optimism amongst UK manufacturers dwindle over recent months. The BoE’s data will include, in addition to headline M4 Money Supply, Net Lending to Individuals and Corporations, Mortgage Approvals, and Net Mortgage Lending. Credit markets are healthy in the UK, and so the data is likely to pass unnoticed, with steady expansion expected in most measures, although the number of mortgage approvals is expected to cool slightly.

EUR Friday’s inflation data contained no surprises, and the euro weakened slightly to USD after a volatile session. The Consumer Price Index rose 0.3% year on year in November, according to the flash estimate of the statistic. Excluding food and fuel, the index rose 0.7% over the same period. Both of these measures were unchanged from their previous reading and widely anticipated by forecasters, and so could be described as a “status quo” result. In fact, inflation has been hovering around these levels for several months, so the market reaction to the data was muted. However, low inflation such as this has recently been described as unacceptable by Mario Draghi. The European Central Bank President last week added new urgency to his tone on inflation, stating that the ECB needed to act in order to bring CPI up to target “without delay”. After Friday’s lukewarm figure, attention will be firmly focussed on this Thursday’s ECB press conference. The ECB may announce further easing measures, including corporate bond purchases or even government debt.

USD Friday was a quiet day in terms of fundamental data for the United States, but consumers enjoyed Black Friday sales across the country, during what is normally the busiest day of the year for retailers and an important bellwether for consumer spending. Official Retail Sales data for November will not be released until December 13th, but initial estimates from non-official sources are pessimistic. The National Retail Federation estimated that spending would fall 11% from 2013, with the average shopper’s spend falling to $380.95 over the four day period. This week will be packed with US data, with Purchasing Managers Indices for the Manufacturing Sector due from research agencies Markit and ISM at 14:45 and 15:00 GMT respectively. Central bank decision makers William Dudley and Stanley Fischer will speak at separate events, at 17:15 and 18:00.

CAD The prospect of lower oil prices in the medium term weighed heavily on the Canadian dollar on Friday, and the currency almost reached its weakest levels for the year against USD early this morning. Some slight retracement appears to happening as of writing, although how long the CAD can maintain this mini-rally is extremely doubtful. Canada’s GDP was shown to have growth 0.4% month on month in September, on expectation. Prices for Raw Materials and Industrial Products plummeted, with the Raw Materials Price Index falling 4.3% month on month-clearly showing the effects of lower oil prices.

UK news

  • FT. UK manufacturers scale back expectations for growth in 2015: Britain’s manufacturers are beginning to scale back their expectations for growth next year as economic and political uncertainties intensify.
  • Reuters. Osborne pledges pre-election healthcare funding boost: Chancellor George Osborne announced a 2 billion-pound annual rise in healthcare spending on Sunday, seeking to counter attacks on his Conservative party’s handling of the health service six months before an election.
  • Guardian. Interest rate rise will come next summer, economists predict: Poll of economists finds that July to September 2015 is the likely time for Bank of England action.
  • Guardian. Political uncertainty threatens UK economy despite ‘healthy’ growth: CBI says growth remained stable up to November and has returned to sustainable levels – but there are hurdles ahead.
  • Telegraph. Osborne’s surplus will be year late, warns EY: Economists at EY Item Club warn that forecasts for government borrowing are likely to be revised up by £9bn.