Morning Report: 10 December 2015

10th December 2015 By: Ranko Berich

GBP Sterling took full advantage of the dollar weakness prevalent yesterday, and GBPUSD is now more than a percentage point higher than yesterday’s low. Today will see the Bank of England announce its latest rate decision, alongside a monetary policy summary and its latest meeting minutes. Inflation remains nowhere to be seen in the UK economy, and the latest economic data, which show slowing output in the manufacturing sector and a persistent current account deficit, are not conducive to any increase in interest rates. Today’s releases are therefore likely to contain no major surprises, and certainly no change to the current official Bank Rate. The Bank Rate decision, alongside the latest Monetary Policy Summary and Meeting Minutes, will be released at 12:00 GMT.

EUR The euro’s continued to strengthen yesterday, particularly against the US dollar. The European Central Bank’s Ewald Nowotny criticised reactions to last week’s ECB meeting, where the Bank was widely reckoned to have fallen short of expectations for more easing, causing the euro to strengthen. Nowotny said the ECB had gotten its measures right, and that analysts had badly misjudged the meeting. The Governing Council member went on to say that the ECB would not be influenced by financial markets in its decision making. The ECB’s commitment to reaching its inflation target will now surely be called into question, considering how important the psychological effects of quantitative easing have proven to be in other jurisdictions. For example, in Japan and the United States, central bankers implementing QE have previously sought to appear decisive and relentless and emphasized that QE will continue for as long as necessary. This is in stark contrast with the ECB, which now appears to be dragging its feet as low inflation persists. With the euro strengthening rapidly and inflation at multi century lows while commodity prices continue to tumble, Nowotny’s fighting words will surely be put to the test in 2016.

USD The US dollar took another beating yesterday, despite some better than expected Inventories data. Wholesale Inventories shrunk 0.1% in October, good news for the economy, which has been weighed down by a glut in excess inventory in recent months. Today at 13:30 GMT, weekly Unemployment Claims data will be released, alongside Import Prices.

CAD Volatility in crude oil markets send the Canadian dollar to fresh lows versus USD yesterday, but since then the loonie has regained some ground. Crude Oil inventories in the United States finally began to shrink, after 10 straight weeks of inventory glut. The data appeared to calm crude oil markets, which rallied slightly. Today at 13:30 GMT, the New House Price Index will be released alongside the Capacity Utilisation rate for the economy.

UK News

  • FT. Higher business rates mean lower rents: Most of the cost of higher business rates is passed on to landlords in the form of lower rents, especially in regional markets such as Manchester, Newcastle and Birmingham.
  • Reuters. UK surveyors report rapid November house price growth, lack of homes: British property valuers reported sustained price increases in November and a record shortage of houses to sell, but expressed some hope that incentives for first-time buyers would lead to more sales in the coming months.
  • Reuters. Bank of England might send message on distant rate hike bets: The Bank of England on Thursday might seek to challenge the view in financial markets that it is still a very long way from raising interest rates, nearly seven years after it cut them to a record low.
  • Daily Mail. Low interest rate ‘has cost UK savers £150bn’ and it’s set to be frozen at 0.5% again today: Savers have missed out on more than £150billion of interest payments as a result of ultra-low interest rates since the financial crisis, according to a report published today, writes Hugo Duncan.