Morning Report: 03 December 2014

3rd December 2014 By: Ranko Berich

GBP Sterling weakened overnight, as markets wait for the Government’s Autumn Statement on the budget. Yesterday more evidence emerged that the construction sector is cooling, as research agency Markit’s Purchasing Managers Index fell from 61.4 to 59.4, its lowest level in a year. The reduced level of activity reported by the surveyed managers is consistent with the cooling seen in the housing market recently. The reading was nonetheless above the 50 level that indicates overall growth in the sector. Today, Services PMI will be released at 09:30 GMT. The day’s main event for sterling will be the release of the Government’ Autumn Statement, given by Chancellor of the Exchequer George Osborne. In addition to detailing the government’s fiscal plans, the statement will contain forecasts for the economy, and as such can have a direct effect on sterling.

EUR The euro reached its lowest level against USD since 2012 this morning, after the trend of poor eurozone data continued through yesterday and this morning. Yesterday saw the Producer Price Index disappoint expectations for a slight improvement in October, and instead showed prices for finished goods plummeting 0.4% month on month. Even though the European Central Bank is not directly tasked with controlling producer prices, the results are worrying because if producer prices are deflating it creates a major disincentive for investment. Already this morning, mixed data has been released in the form of Services Purchasing Managers Indices for Italy and Spain, both of which remained barely in positive figures, as did the overall Eurozone figure.

USD The United States dollar is looking strong this morning, between low oil prices and more encouraging economic data. Yesterday afternoon saw the release of Construction Spending, which showed a 1.1% rise in October, beating already high expectations. Total Vehicle Sales, a headline measure of consumer spending, also beat expectations and showed that 17.5 million vehicles had been sold in November. Today, research agency ADP will release its Non-Farm Employment Change report at 13:15 GMT. The report is somewhat relevant as it is a preview on Friday’s extremely important official Non-Farms report. At 13:30 GMT, Non-Farm Productivity and Unit Labour Costs will be released. Both are important measures of the underlying strength of growth in the economy. Later in the afternoon, the ISM Non-Manufacturing Purchasing Managers Index will be released at 15:00 GMT.

CAD The Canadian dollar has once again weakened, ahead of important events today. The Bank of Canada will release its latest Rate Statement at 15:00 GMT. Interestingly, the BoC has recently suggested it will not give forward guidance, so the statement is likely to be very neutrally worded. The BoC’s latest Overnight Rate will also be announced, although no change is expected. Later in the afternoon, BoC Governor Stephen Poloz will speak at 22:30 GMT.

UK news

  • FT. Osborne lines up stamp duty shift: George Osborne will on Wednesday unlock £1bn of support for small business and announce measures to help people in to the housing market, as he strives to present a positive outlook against a backdrop of stubbornly high borrowing.
  • Reuters. Osborne set to concede missed budget goal as election nears: Chancellor George Osborne looks set to concede on Wednesday that his push to fix the public finances has suffered another setback thanks to slow pay growth, six months before voters head to the polls.
  • Reuters. UK retailers report fall in food prices for first time – BRC: The British Retail Consortium said food prices dropped last month for the first time since it started collecting data in December 2006, as a supermarket price war intensified.
  • Reuters. UK construction sector expands at slowest pace in 13 months – PMI: British construction activity expanded at the slowest pace in more than a year last month, with order books filling at the slowest pace since June 2013 and optimism waning, a survey showed on Tuesday.