Morning Report: 15 December 2014

15th December 2014 By: Ranko Berich

GBP Sterling has been trading in a tight range since Thursday against USD, as FX markets struck a rather placid tone after a volatile start to the week. Friday’s Construction Output data showed a 2.2% contraction in Output in the third quarter of 2014, although year on year to October activity still remains higher. After frenzied activity in the housing market during the first half of the year, the sector is now showing some cooling, although this is not yet any cause for concern. Move evidence of cooling in the housing marker emerged last night when Mortgage lender Rightmove released its House Price Index, which showed a large 3.3% contraction in house prices in December. Today at 11:00 BST, the Confederation of British Industry will release the results of its latest survey of Industrial Order Expectations, which will give the latest forward looking assessment of how much demand is anticipated by UK businesses. Overall, sterling appears to have staunched its losses against USD over recent trading sessions and is showing signs of stability. Further downwards moves on GBPUSD are likely to encounter strong resistance. Tomorrow’s 09:30 release of Consumer Price Index data will be critical after inflation showed a marked deterioration in last month’s reading. Wednesday will see the release of labour market data include the Average Earnings Index, which is being closely watched by markets and by the Bank of England for a much anticipated improvement in real wages.

EUR Markets appear to be growing numb to poor euro data, after a tide of bad news last week was met with range bound euro trading. Friday’s German Wholesale Price Index showed that prices were outright contracting for German wholesalers, while Industrial Production in the eurozone as a whole grew a meagre 0.1% in October. This week will see Purchasing Managers Indices for Manufacturing and Services in France, Italy, Germany and the eurozone released tomorrow morning, and expectations are already low for the majority of the readings. Wednesday and Thursday will see more important data in the form of the eurozone Consumer Price Index and German IFO Business Climate survey.

USD The United States dollar continues to perform strongly against most of its peers, although the back end of last week saw a noticeable retracement against the Japanese yen. The fundamental data from the US has been painting an increasingly rosy picture of late, and Friday’s releases were mostly true to this theme. Although the Producer Price Index contracted 0.2% in November, this must be tempered with the fact the index rose by the same amount previously. Consumer Sentiment as measured by the University of Michigan reached an eight year high, and consumer inflation expectations were 2.9%, significantly higher than the inflation expected and priced in by financial markets. This week will revolve around Wednesday’s developments in USD, with the Consumer Price Index due out at 13:30 BST followed by the Federal Open Market Committee’s latest rate decision and policy statement. This afternoon will see some minor data releases, with the Empire State Manufacturing Index due out at 13:30, followed by Capacity Utilisation at 14:15 together with Industrial Production.

CAD CAD remains in freefall, and has weakened more than 1% against USD in the last week. The cause is clear: oil prices are falling and are set to fall further. Over the weekend Suhail Al-Mazrouei, energy minister from the United Arab Emirates, said that OPEC will not change their minds about maintaining output even if oil prices fall to $40 USD per barrel. OPEC oil production costs are far lower than those in North America, and the decision to allow oil prices to fall has been viewed by some as an attempt to discourage further investment in competing wells in Canada and the United States. This week. The Canadian Consumer Price Index will be released on Friday at 13:30 GMT.

UK news

  • FT. David Cameron to defend goal of budget surplus in next parliament: David Cameron will defend Conservative plans to run a budget surplus in the next parliament, in the face of renewed claims by the Liberal Democrats that continuing Tory spending cuts would “devastate” public services.
  • Reuters. Asking prices for UK homes suffer record fall – Rightmove: Asking prices for homes on sale in Britain posted the largest monthly fall on record in December but are likely to rise by between 4 and 5 percent next year, property website Rightmove said on Monday.
  • BBC. Benefits cap is getting more into work, research claims: The government’s cap on benefits is providing an incentive for people to find work, new research has suggested.
  • Telegraph. George Osborne will have to raise taxes to hit deficit targets, warns S&P: Standard and Poor’s has called the Government’s deficit reduction targets into question, and suggested that Chancellor George Osborne will need to raise taxes in order to stay on track.
  • Telegraph. UK has become ‘magnet for investment’, says CBI: Rapid growth pushes Britain up league table for investment, but CBI says more needed to keep UK ahead.