Morning Report: 1 December 2015

1st December 2015 By: Ranko Berich

GBP After reaching a 7-month low and hitting a strong psychological support yesterday, sterling has recovered almost a cent versus dollar overnight as buyers of GBP overcome sellers. Today, the Bank of England released the results of the second stress test carried out on UK’s biggest lenders. The test assessed a shock from a hypothetical sharp recession in China, in which GDP falls from 7% to 1.7%, dragging global financial markets and commodity prices down, and resulting in a strong deflationary recession in UK and Europe. The results are overall satisfactory for the UK economy as the Financial Policy Committee judged that no macroprudential actions are required to control for possible unexpected shocks to the economy, and concluded that bank’s capitalisation has improved since the initial test earlier this year. There are no further economic releases scheduled today.

EUR The single currency closed the month hitting new fresh lows versus dollar as speculation for ECB’s further easing keeps being priced in the markets. Yesterday’s economic releases in the Eurozone did not help the single currency as inflation keeps falling sharply in the big European economies. Italy’s CPI month on month fell to 0.4% with respect to October, the second worst result of the last 2 years. German Retail Sales month on month also dropped significantly falling short of expectations for the third consecutive month. Today, Markit will release the manufacturing PMIs for a number of countries, culminating with the Eurozone’s overall reading at 9.00 GMT, followed by the unemployment rate at 10.00.

USD The greenback starts the last and most decisive month of the last few years on the back foot, as it has retreated versus a basket of global peers overnight. However, this should not be interpreted as a bearish signal. A busy week ahead with plenty of different events and speeches, all centred around the ECB’s monetary policy meeting on Thursday, have the potential to resume USD’s seemingly unstoppable bull trend. Today Markit will release its Manufacturing PMI at 14.45 GMT, followed by ISM’s alike indicator at 15.00.

CAD CAD strengthened versus USD yesterday after the Canadian Current Account narrowed to its lower level of the year. Canada’s busy week kicks-off today with the release of the last GDP figure at 13.30 GMT and RBC’s manufacturing PMI at 14.30.

UK News

  • Reuters. BoE plans to make banks hold up to 10 billion pounds more capital: The Bank of England set out plans on Tuesday to require banks to hold a total of up to 10 billion pounds more capital as they start to lend more freely in a recovering economy, but stopped short of demanding immediate action.
  • Reuters. UK public’s inflation expectations sag to six-month low in November: The British public’s expectations for inflation over the coming year fell to a six-month-low in November, according to a survey published on Monday.
  • Daily Mail.  Revealed: The top Help to Buy Isa rates available to first-time buyers – and how long it takes to earn the maximum £3k Government bonus: A new route to saving for a mortgage deposit has opened up for first-time buyers today with the launch of the Help to Buy Isa.