Morning Report: 04 December 2014

4th December 2014 By: Ranko Berich

GBP Sterling failed to move outside its recent trading range against USD yesterday, but did strengthen against the euro. Growth in the services sector, by far the largest and most important part of Britain’s economy, accelerated. Markit’s Purchasing Managers’ Index for the services sector rose to 58.6, more than expected and well above the 50 level that indicates growth. Employment in the sector continued to expand, which is particularly encouraging given the central importance of the labour market to monetary policy from the Bank of England. George Osborne, Chancellor of the Exchequer, presented the Government’s autumn statement on the budget during a raucous parliamentary session. The statement itself outlined a textbook election year budget, with tax cuts to stamp duty and attention grabbing funding for the NHS, while the reduction of the budget deficit continues. The government’s view of the economy in 2015 is rosy, with 2.4% growth in Gross Domestic Product forecast. Today at 12:00 GMT the Bank of England will announce the latest Bank Rate, and no change is expected.

EUR The euro weakened yesterday, as anticipation built for today’s European Central Bank press conference and interest rate announcement. Yesterday’s Retail Sales Figures showed that retail sales grew by 0.4% in October, a statistic that seems far less encouraging when the 1.2% contraction seen previously is taken into account. Mario Draghi and the ECB face a dire economic situation in the eurozone, with disappointing results like yesterday’s retail sales being the norm and inflation languishing far below the ECB’s target. The ECB is therefore under increasing pressure to widen the scope of its asset purchases in include sovereign debt, an action that would immediately weaken the euro as asset yields plunge across the eurozone. The European Central Bank will announce it’s latest interest rates at 12:45 GMT, followed by a press conference at 13:30.

USD The United States dollar continues to perform strongly, making major inroads against EUR and JPY. More firm economic data emerged yesterday. Research firm ADP’s Non-Farm payrolls report estimated that 208,000 jobs had been created in November, slightly less than expected. Productivity in the US grew 2.3% in the third quarter, on expectation. Finally, Purchasing Managers Indices for the non-manufacturing and services industries from ISM and Markit showed strong expansion in the areas of the US economy outside of manufacturing. Today, weekly Unemployment Claims will be released at 13:30 GMT.

CAD CAD strengthened marginally yesterday, after the Bank of Canada released an utterly neutral statement on monetary policy with yesterday’s unchanged interest rate decision. BoC Governor Stephen Poloz struck a cautiously optimistic note in a speech, stating that the economy’s recovery was broadening, helped along by a weaker Canadian dollar. Poloz and the BoC can be expected to continue to tread lightly around talk of sharper interest rates for fear of strengthening CAD and taking away the advantage exporters are currently enjoying. Today, the Ivey business school will release its Purchasing Managers Index at 15:00 GMT.

UK news

  • FT. Autumn Statement 2014: Stagnating productivity threatens finances: Reforms that mean more investment in infrastructure and tackle anomalies in the tax system are all much needed and welcome. No one will complain about the windfall from fines or cutting the amount of losses that misbehaving banks can put against their profits.
  • FT. Autumn Statement 2014: 1m more public sector jobs to go: Another 1m public sector jobs are expected to be lost over the next five years as part of the latest squeeze on the public finances.
  • FT. Services data show UK economy continues to grow: Britain’s economy continues to grow at a healthy pace, according to a survey of the services sector, which shows companies are hiring more workers as new business rolls in.
  • Independent. Autumn Statement 2014: ‘Complete reform’ of stamp duty as Osborne slashes rate for 98 per cent of home buyers: An eye-catching scheme to reform stamp duty and cut taxes for 98 per cent of home buyers was today announced as the centre piece of George Osborne’s last autumn statement before the election.
  • Daily Mail. Autumn Statement boosts small firms and high tech companies – but little is on the table for exporters and manufacturers: The Autumn Statement delivered a pre-Christmas package of goodies for small firms and for high tech manufacturers, but there was relatively little on the table for mid-sized companies and exporters.
  • Telegraph. Autumn Statement 2014: jobs-rich recovery to continue: Government’s official forecaster expects unemployment to fall to 5.4pc next year.
  • Telegraph. Autumn Statement: George Osborne to shrink the State to its smallest in 80 years: Public spending will fall to almost unprecedented lows, but only after even deeper cuts in public services, Treasury figures show.
  • Telegraph. UK growth powers ahead but Government borrowing remains stubbornly high: Weaker-than-expected wage growth and tax receipts will force the Treasury to borrow more than £90bn this fiscal year.