Morning Report: 11 January 2016

11th January 2016 By: Ranko Berich

GBP Sterling weakened significantly last week, as mounting political risk and lukewarm economic data further worsened the downwards trend seen in the last months of 2015. No data will be released today, but tomorrow’s calendar includes Manufacturing Production data and a speech from Bank of England Governor Mark Carney. Later in the week, on Thursday, the Bank of England will release its latest rate decision, accompanied by a Monetary Policy Summary and meeting minutes. David Cameron is on the news wires this morning, after saying over the weekend that a British exit from the European Union is “not the right answer”. Despite this unequivocal statement from the head of the Government, an in-out referendum on membership is expected this summer, raising the possibility of further downwards pressure on sterling as uncertainty increases.

EUR Last week’s chaos in financial markets was positive for the euro, which strengthened against a wide range of currencies including GBP and USD. EURUSD was particularly buoyant, and is likely to creep into positive year on year change in the coming months unless significant moves downwards are seen. Friday’s data was bad news, with German and French Industrial production falling well short of expectations. This will be a slow week in terms of euro data, although Sentix Investor Confidence will be released this morning at 09:30 GMT. Later in the week, French inflation data will be released on Wednesday, as will Industrial Production, followed on Thursday by meeting minutes from the European Central Bank’s last rate-setting meeting.

USD USD continued to strengthen against sterling last week, but weakened to the euro while having a very volatile week against commodity currencies. Friday’s Non-Farm Payrolls report was nothing short of spectacular, showing the economy had added 292,000 jobs in December. Previous reports were also revised upwards, while wage growth fell slightly to 0.0% month on month growth. The report goes a long way to proving the Federal Reserve’s view of the economy, which holds that the tightening labour market means inflation will begin to rise in the near future. Today at 15:00 GMT, the Labour Market Conditions Index will be released, and later in the week Retail Sales and Producer Prices will be released on Friday.

CAD CAD has weakened almost 3% against the US dollar this year, consistently reaching new lows during last week’s trading. With crude oil prices still taking a beating, the prospects for recovery seem limited, especially with this week’s sparse data calendar. Housing Starts will be released today at 13:15 GMT, followed at 15:30 by the Bank of Canada’s Business Outlook Survey.

UK News

  • Reuters. UK losing shine as competitive base for manufacturers – survey: Britain is becoming less competitive as a base for manufacturers, according to a group representing the factory sector which warned the government against laying further costs on firms which make cars, chemicals and other goods in the UK.
  • Daily Mail. First-time buyer numbers fall as average amount needed for a deposit hits £30,000: The estimated number of first-time buyers slipped back in 2015 for the first time in four years as the typical deposit needed tipped over the £30,000 mark, according to a report.