Morning Report: 07 November 2016

7th November 2016 By: Ranko Berich

GBP. Sterling rallied strongly last week, driven by a relatively hawkish Bank of England and, more importantly, a high court judgement that the Government could not activate the process of leaving the European Union without an act of parliament. This morning, however, sterling is trading down against the US dollar and has also pared its gains versus the euro. With all eyes on the US election it’s possible sterling may finally find itself out of the limelight somewhat this week, although as always that depends on a lack of new political headlines. This morning Halifax’s House Price Index was reported to have risen 1.4% in October.

 

EUR. Friday’s Services Purchasing Managers’ Indices for the eurozone were generally slightly below expectations, and the weekend’s political news seems to have been very mildly USD positive, so the euro has found itself on the back foot this morning against the greenback. German Factory Orders data released this morning showed orders contracting 0.6% in September, although this comes after a 0.9% increase in August. Also released this morning was the Retail Purchasing Managers Index, which fell further into contractionary territory, which bodes ill for today’s 10:00 GMT release of Retail Sales data.

 

USD. The dollar is up this morning, after news emerged over the weekend that the FBI had not changed conclusion that Hillary Clinton still has no case to answer after the discovery of additional emails by the FBI. The discovery of the emails prompted FBI director James Comey to write a letter to lawmakers informing them of the discovery, causing a sell-off in USD on the perceived increased chances of Donald Trump winning this week’s presidential election. Of course, the election is yet to be decided, and despite Clinton still leading in polls her lead has narrowed drastically. The potential for volatility across all financial assets including FX is high, with exit polls expected as early as tomorrow evening. The fact that last week’s Non-Farm payrolls report was almost completely ignored by FX markets indicates just how strong the focus is on this week’s election. The report showed the economy added 161,000 jobs in October, while wage growth accelerated significantly, supporting the case for a rate hike in December.

 

CAD. The loonie had one moment of dramatic weakness on Friday but ultimately rallied to close almost flat. OPEC continued its descent into farce last week as Saudi Arabia threatened to increase production if Iran did not participate in cuts in order to support prices, causing crude oil benchmarks to slip. Friday’s economic data included a surprisingly strong increase in net employment, although Canada’s Trade Balance fell further into deficit. The Ivey Purchasing Managers Index, on the other hand, surged as the surveyed businesses saw confidence soar. This will be an uneventful week for the loonie in terms of fundamental data, with Housing Starts and Building Permits out tomorrow at 13:15 and 13:30 GMT respectively.

 

UK news

 

Monex Europe: US Election Night Services. Tomorrow, November 8, is the date for the US presidential election. Market conditions will be more volatile than normal in the run up to and after the outcome. As we experienced with Brexit, FX rates are likely to trade in wider ranges. Market orders should be placed shortly to take advantage of any adverse movements. Monex Europe’s trading, support, and market analysis teams will be manned in London overnight to monitor markets and handle client trades. Should you have any questions, please contact the dealing team on +44 20 3650 6320.

 

REUTERS: May promises EU exit ‘in full’ despite legal challenge. British Prime Minister Theresa May said on Sunday she would deliver a full exit from the European Union, hitting back at critics of her Brexit strategy who have threatened to try to block the process in parliament.

 

REUTERS: Scotland and others expected to join Brexit legal challenge – lead claimant. Scotland’s devolved government is expected to join a legal challenge against the British government’s plans to trigger an exit from the European Union, the lead claimant in the court case said on Sunday.