Morning Report: 11 December 2015

11th December 2015 By: Ranko Berich

GBP Sterling regained some of the ground it has recently lost to the euro yesterday, as the Bank of England released another extremely cautious Monetary Policy Summary. The Summary, which accompanied the latest Bank Rate decision and meeting minutes, showed that the BoE remain far too pre-occupied with the drags currently holding down the economy to seriously consider hiking interest rates. The lone dissenter, Ian Mcafferty, held an opposing view, but the majority appears to remain solidly in the dovish camp. One interesting development in the meeting minutes is that members were concerned that low inflation was beginning to filter through to pay negotiations. This is one element of the dreaded “deflationary spiral” that monetary policy has tried so hard to avoid in the post-crisis period, and, if wage growth begins to slow down in earnest it may merit more serious attention. Today at 09:30 GMT, The Bank of England and the ONS will release Construction Output and Consumer Inflation Expectations, respectively.

EUR The euro has been on a tear this week, and it was only yesterday that EURUSD began to show signs of slowing down, falling some 1% from Wednesday’s high throughout the day. French Inflation data showed the economy solidly in deflation, with prices falling 0.2% month on month. Industrial Production, in the meantime, shot up 0.5%. Bundesbank head and influential European Central Bank decision maker Jens Weidmann spoke in Lisbon yesterday, and generally re-enforced his reputation as a monetary hawk. Weidmann, who has previously been critical of the ECB’s loose monetary policy, said that QE reduced the incentive for governments to keep fiscal policy tight. Of course, if inflation fails to improve as the ECB is expecting and the eurozone enters a “lost decade” similar to Japan’s, loose fiscal policy will be one of the few remaining tools to revive the area. Time, and inflation data in 2016, will ultimately tell how justified Weidmann’s concerns are.

USD USD firmed up somewhat yesterday, but remains far weaker than before last week’s European Central Bank events. Yesterday’s weekly Unemployment Claims were slightly higher than the average of the last couple of months, with 282,000 initial jobless claims. Import Price data showed a smaller than expected fall in import prices in November. Today at 13:30 GMT, Retail Sales data will be released alongside the Producer Price Index. Although these are both important from an economy perspective, expectations for next week’s Federal Reserve meeting are so high that some exceptionally good or bad data would be needed to move USD significantly.

CAD Brent crude oil continues to languish below $40 a barrel this morning, and the Canadian dollar is certainly feeling the effects, falling to a fresh decade low vs USD. New House prices rose a healthy 0.3% in October, while the economy’s Capacity Utilization Rate rose slightly to 82%. Both statistics were basically ignored by the Canadian dollar, which is trading in lock step with crude prices at the moment.

UK News

  • Reuters.  Number of Britons expecting BoE rate rise falls to two-year low: The number of Britons expecting the Bank of England to raise interest rates in the next 12 months has fallen to its lowest in two years, a central bank survey showed on Friday.
  • Reuters. UK construction output edges up less than expected in October: British construction output edged up less than expected in the month of October, suggesting the sector got off to a slow start in the final months of the year following a steep decline in the third quarter.