Morning Report: 13 December 2016

13th December 2016 By: Ranko Berich

GBP Sterling is on the front foot this morning, approaching last week’s multi-month highs against both USD and EUR on firm inflation data. Year on year Consumer Price Index inflation has reached 1.2%, a larger than expected increase that represents a two year high for inflation. Core inflation, which excludes food and fuel prices, was also higher than expected at 1.4% year on year, reflecting the broad increase in inflationary pressure. Food prices remained in decline, as did Transport costs, meaning that a reversal in price trends for these two particular categories in 2017 could result in a substantial increase in inflation. With sterling reacting very favourably to this morning’s release, attention will now be firmly focussed on tomorrow’s labour market data.

EUR The euro is paring its gains versus USD this morning, while also selling off against sterling. This morning’s data releases have generally fallen short of expectation, with the German Wholesale Price Index expanding 0.1% after last month’s 0.4% growth. Italian Industrial Production was flat in October, a disappointing result given the 0.8% contraction in September. The German ZEW Economic Sentiment index, a widely followed survey of investors and analysts, remained flat although the eurozone wide index showed improvement. Eurozone Employment figures showed a smaller than expected increase in the third quarter, rounding off a morning of mediocre data.

USD USD is largely reacting to developments in other currencies this morning, as markets focus on tomorrow’s all important Federal Open Market Committee rate announcement. Appropriately, very little US data of interest will be released today with the NFIB Small Business Index due for release at 11:00 GMT and Import Prices at 13:30 GMT. An auction of 30 year US treasuries at 18:00 may be worth watching, as it could be a gauge of demand for long dated fixed income ahead of tomorrow’s potentially historic Federal Reserve events.

CAD The loonie has been advancing relentlessly for weeks now, but made little further progress over the course of yesterday’s session, with most of its advances being front loaded in the early hours of the morning off the back of the weekend’s OPEC news. No Canadian data will be released today, meaning the focus will be on whether crude oil prices continue to pare their gains after yesterday’s increases.

UK news

  • Reuters. UK inflation rises to highest in over two years in November. British inflation hit its highest rate in more than two years last month, pushed up by more expensive clothing and the impact of June’s Brexit vote on the prices consumers paid for technology goods.
  • FT. Philip Hammond calls for transition deal to ‘smooth’ Brexit. Chancellor speaks out for first time on need for more than two years to finesse exit. Chancellor Philip Hammond on Monday called for transitional arrangements to “smooth” Britain’s exit from the EU, the most senior cabinet figure to publicly suggest that there might not be a clean break with Brussels in 2019.