Morning Report: 13 January 2016

13th January 2016 By: Ranko Berich

GBP After beginning the week with a minor rally, things went south for sterling and yesterday quickly turned into a slaughter, with the pound selling off heavily against USD and EUR. Industrial Output figures showed the manufacturing sector was in recession, with total output falling 1.2% in November 2015 compared to a year ago. Despite manufacturing playing only a bit part in the economy, the bad news was enough to send sterling into a tail spin, hitting fresh lows against both USD and EUR. Ironically, the pound’s depreciation is one factor that is likely to help the manufacturing sector, which has struggled to remain competitive amid weak global demand and decades of less than supportive government policy from both sides of the political spectrum. Bank of England Governor Mark Carney participated in a panel discussion on the banking sector, but, apart from reassuring the sector that central bankers were not plotting another round of regulations for the sector, steered clear of market-moving topics.

EUR The euro continued to shed its panic-induced gains from earlier in the year yesterday, weakening to the US dollar, while seeing a choppy 24 hours against the pound. Eurozone equities were in the green, which also increased confidence on Wall Street, and as a whole “safe haven” flows into currencies such as EUR, CHF, and JPY subsided and these currencies softened slightly. French CPI was released earlier this morning above expectations growing at 0.2% month on month. Today at 10.00 GMT industrial production data in the Eurozone will be released.

USD Risk appetite returned to financial markets yesterday, as US equities recovered, causing another day of USD strength vs safe havens such as EUR and weakness vs risk currencies such as AUD and NZD. Chinese authorities are believed to have intervened in the market to stem recent declines in the yuan, and better than expected external sector and trade balance data, also in China, have eased market uncertainty. No significant data was released yesterday in the US, although Stanley Fischer, from the Fed, spoke in a conference in Paris at the Bank of France, where he mentioned that the future of monetary policy may imply a lower interest rate equilibrium, but still expects productivity to pick up through 2016. Today is another mild day in terms of US economic data and no major releases are due.

CAD The is benefitting only slightly from the improved risk appetite seen in markets overnight, but the gains have gone only a small way to recovering the extreme losses seen during Monday and Tuesday’s sessions. Crude oil stabilized overnight after a positive external sector data was released in China, but remains cheap compared to the last 5 years.

UK News

  • FT. CBI chief in appeal to business minister on apprenticeship levy: The head of the CBI has written privately to Sajid Javid, the business secretary, to warn that the new “apprenticeship levy” could impose huge costs on business without any improvement in the training they provide.
  • Reuters. UK economy likely picked up speed in Q4 2015 – NIESR: Britain’s economy probably expanded 0.6 percent in the last three months of 2015, picking up from a mid-year slowdown and putting growth for the year close to its long-run trend, a think tank said on Tuesday.
  • Reuters. UK industrial output suffers sharpest fall since early 2013: British industrial output suffered its sharpest fall in almost two years in November and retail spending disappointed over Christmas, denting hopes that the economy bounced back from a mid-year slowdown at the end of 2015.