Morning Report: 12 December 2014

12th December 2014 By: Ranko Berich

GBP Sterling was largely unchanged from open to close yesterday, despite some substantial intraday volatility against USD and EUR. Although it was a rich day of data releases elsewhere, no headline UK data was released. This morning, monthly Construction Output data will be released at 09:30 GMT. Expectations for the figure are high, with median predictions from economists surveyed by Bloomberg at 0.7% monthly growth. It is no secret that demand for housing is high in parts of Britain, but the house price growth has actually been slowing in recent months, making this morning’s construction output data all the more relevant. Later in the morning at 10:00, the Conference Board will release its Leading Index, an amalgamation of various economic indicators that is designed to give an idea of the future direction of the economy.

EUR The euro strengthened to lofty heights in the wee hours of the morning yesterday, but the light of day proved harsh for the currency, and a fresh crop of poor data meant that by the evening all of its gains were gone. German and French Consumer Price Index inflation was broadly on expectation, showing flat price levels in Germany and outright contraction in France. Later in the morning the European Central Bank announced how much of its latest offer of cheap loans had been taken up by eurozone banks. 129.8 billion euro of extra lending had been achieved, significantly less than the amount hoped for. Given the ECB intends to expand its balance sheet by a total of 1 trillion euros, yesterday’s data suggests that the ECB may have to look beyond its current mix of tools to achieve the easing the eurozone needs. Today, Industrial Production and the Employment Change will be released for the eurozone as a whole at 10:00 GMT.

USD The United States dollar had a divergent trading session yesterday, with performance differing between trading currencies. Ultimately the dollar strengthened against EUR and was largely unchanged against sterling. In terms of fundamental data and political developments the picture for the US was entirely positive, with a spending deal on the Federal budget being reached in the House of Representatives. Earlier in the afternoon, US Retail Sales data exceeded already high expectations to show that monthly retail sales had growth and impressive 0.7% in November. The results point towards a bumper holidays shopping season, justifying the faith shown by US retailers, who have gone on a hiring spree ahead of the holiday period. Weekly unemployment claims were once again low at 294,000. Overall, the fundamental data from the US yesterday shows that the economy is actually accelerating, an extraordinary fact given the US is already outperforming almost all other developed economies.

CAD The Canadian dollar has continued to fall heavily, reaching its weakest level against USD since 2009 off the back of plummeting oil prices. Little hope is in sight for CAD bulls; oil prices continue to fall and the weak loonie suits the Bank of Canada perfectly due to the boost it lends to Canadian exports. Some fundamental data was released yesterday in the form of the New House Price Index and Capacity Utilisation, showing growth in house prices and higher capacity utilisation. However, fundamental data has taken a back seat in CAD’s path at present and it is difficult to see how anything other than a sustained period of outperformance could reverse the currency’s fortunes.

UK news

  • FT. City fears politicians avoiding hard truths: Economists complained after Ed Miliband’s speech on the deficit that no UK political party had yet given enough detail on how to repair Britain’s public finances.
  • Reuters. Carney overhauls rate-setting process at Bank of England: The Bank of England will provide instant information about its interest rate discussions and plans to hold fewer policy meetings under the latest set of changes put forward by Governor Mark Carney.
  • Daily Mail. The average property gained more in value in the past 12 months than the average worker earns in a year: The average property has added nearly £30,000 in value over the past 12 months -more than the annual wage of a typical British worker, research claimed today.
  • BBC. Bank of England to ‘remove drip-feed of news’: >From 2015, the Bank of England will publish policy decisions and minutes of policy meetings at the same time, in an effort to communicate more clearly with the public.