Morning Report: 10 December 2014

10th December 2014 By: Ranko Berich

GBP Sterling was volatile yesterday, as several large disruptions hit equity markets globally, especially in the large Asian markets such as the Shanghai Composite which saw a spectacular 8% fall. Yesterday’s fundamental data added nothing new to the existing picture of the United Kingdom’s macro economy. Although Manufacturing Production and Industrial Production both fell in October, strong growth in August and September mean that both indices remain indicative of healthy growth overall. The National Institute of Social and Economic Research released its latest estimate of the pace of growth in the UK’s economy, showing growth remained a stable 0.7% annualised. Today at 09:30 GMT, Trade Balance data will be released. Unlike Germany and France the UK is not enjoying an export boost from a weak currency, and the trade deficit is expected to be around 9.5 billion GBP.

EUR Despite a day of utter panic and rout in Greek financial markets, the euro actually strengthened yesterday. The Athens share index experienced its largest one day fall since 1987, and sovereign bond yields skyrocketed after Prime Minister Antonis Samaras announced snap Presidential elections. Markets were running scared at the possibility anti-austerity party Syriza would end up more powerful after the elections, an eventuality that would drastically reduce the prospect of Greece sticking to its promises on fiscal spending. Ultimately, the situation created fear that the eurozone crisis could once again rear its ugly head. This morning, data emerged from the French economy which showed that Industrial Production had plummeted 0.8% in October, while non-farm payrolls had also fallen 0.3%.

USD Volatility from developments in Greece and China triggered a cautious tone yesterday, and USD weakened against currencies it had recently made large gains against such as EUR, AUD and JPY. Business publication IBD released its Economic Optimism index, which rose unexpectedly to 48.4, better than expected but below the 50.0 level that indicates overall growth and optimism. Wholesale inventories were up 0.4% in October from last month after growing 0.4% previously, a bad sign given that it indicates inventory accumulation. However, it is too soon to worry about inventory pile up as wholesalers could simply have been stocking up ahead of the surge of spending usually seen in November in December.

CAD Loonie saw almost a full percentage point of volatility yesterday, as USDCAD initially soared to its highest level since 2009 in the early hours of the morning, reflecting CAD weakness. A rally then started, and by the afternoon CAD had gained almost a full percentage point from its weakest point of the day. CAD’s rise and fall was partly mirrored by that of crude oil, which plummeted yesterday before recovering slightly. No Canadian data will be released today, but continued volatility in oil and USD markets certainly has the potential to spill over to the loonie.

UK news

  • FT. UK manufacturing output falls amid euro zone malaise: Britain’s manufacturers have suffered a drop in output as they grapple with economic malaise in their big export markets in the euro zone.
  • Reuters. UK economy set for strong 2015, but premature rate hike ‘huge risk’ – BCC: Britain’s economy still looks on course to expand at a strong pace in 2015, but raising interest rates now would pose a “huge risk” to its recovery, the British Chambers of Commerce said on Wednesday.
  • Reuters. Pension deficit rises to 221 billion pounds in November – data: The shortfall in Britain’s private sector pension plans rose to an estimated 221 billion pounds at the end of November from 165 billion pounds in October, the Pension Protection Fund (PPF) said on Tuesday.
  • Telegraph. UK population boom could make it EU’s top economy: Britain could once again become the most powerful economic force in Europe, but only if we leave the immigration gates open.
  • Telegraph. Buy-to-let lending at highest level since 2008: Banks are once again pushing mortgage products that fell out of favour following the credit crunch.
  • Telegraph. Economy could overheat if interest rates left on hold, warns Bank rate setter: Martin Weale, a member of the Bank of England’s committee of rate setters, has warned that lower productivity growth necessitates an imminent rise in rates.