Morning Report: 05 December 2014

5th December 2014 By: Ranko Berich

GBP It was a quiet day yesterday in terms of sterling data releases, and GBP weakened slightly to both EUR and USD. Mortgage lender Halifax released its House Price Index for November, which showed that house prices had risen to erase the contraction seen previously. The Bank of England kept the Official Bank Rate unchanged at 0.5%, a widely anticipated decision that is not expected to change in the near future. Today, Consumer Inflation Expectations will be released by the BoE at 09:30 GMT.

EUR After a disappointing European Central Bank press conference, the euro actually strengthened yesterday as markets priced in the fact that the ECB was not going to accelerate its asset purchasing programme- yet. The key ECB interest rates remained unchanged, and the ECB did not announce either an acceleration in the rate of its asset purchase programme or, as many hoped, announce that sovereign assets or corporate bonds would be included in the list of assets to be purchased. ECB President Mario Draghi repeated his promise that a too-long period of low inflation would not be tolerated, but it is doubtful how much longer such an assertion will be viewed as credible, with inflation having been below the ECB’s target for almost two years. In the official statement before the press conference, Draghi stated that the ECB would reassess the situation in early 2015. By this time, unless a monetary miracle occurs and inflation begins to show signs of improvement, it is difficult to see how the ECB will be able to avoid stepping up its current easing measures. Moreover, Draghi did clarify that in order to approve such a move, the ECB would not require unanimity in the vote. Today at 10:00 GMT, revised Gross Domestic Product Growth figures will be released for the eurozone.

USD Despite giving up its most recent gains against the euro, the USD still progressed against many of its major partners, reaching particularly impressive levels against JPY. Weekly Jobless Claims were just 297,000, another low figure by historical standards that demonstrates the tightness in the US labour market. Today will see multiple data releases, the most important of which is the Non-Farm Payrolls report, which details the monthly change in employment and is the most influential study of the US labour market. Non-Farms will be released at 13:30 GMT, together with Trade Balance and Average Hourly Earnings. Later in the afternoon, monthly Factory Orders will be released at 15:00, followed by Consumer Credit statistics at 20:00.

CAD CAD weakened gently to USD yesterday, but more signs of green shoots appeared in the economy. The Ivey School of Business released its Purchasing Managers’ Index, which rose to 56.9. A level above 50 indicates growth in business activity reported amongst the surveyed business managers. Considering the index was previously at a meagre 51.2, the increase shows a marked improvement in optimism and growth. Today at 13:30 GMT, labour market data including the Unemployment Rate and Labour Productivity will be released. More positive CAD data could force markets to reassess the bearish tone they taken on loonie recently, and put a spanner in the works for the Bank of Canada, which has noted the positive effect the weak Canadian dollar has had on exporters.

UK news

  • FT  Think-tank criticises George Osborne’s ‘bad habits’ on tax: George Osborne has flattered the public finances by using a temporary tax increase for banks to finance permanent tax cuts, according to an independent think-tank which said it was the latest example of a “bad habit” of the chancellor.
  • FT  UK economic outlook remains gloomy: George Osborne on Thursday rounded on critics of the government’s economic forecasts, branding concerns about the depth of the proposed spending cuts as “nonsense”
  • FT  Bank of England keeps rates and policy on hold: The Bank of England has kept interest rates on hold for another month, deciding that subdued inflationary pressures and the weak euro zone outlook mean monetary policy can stay loose.
  • FT  Vince Cable’s UK budget concerns expose Lib Dem tensions: Vince Cable has exposed tensions within the Liberal Democrat leadership over economic policy in the wake of the Autumn Statement which could result in a section of the party challenging coalition plans for a balanced budget law.
  • Reuters  House prices rise at slowest rate in nine months in November – Halifax: House price growth slowed again in the three months to November as prices rose by 8.2 percent compared with the same period last year, their smallest increase since February, mortgage lender Halifax said on Thursday.
  • Daily Mail  Britain faces spending cuts ‘on a colossal scale’ to balance the books by 2020, warns Institute for Fiscal Studies: George Osborne will have to impose spending cuts ‘on a colossal scale’ to meet his targets, a leading think-tank warned yesterday.