Morning Report: 15 January 2015

15th January 2015 By: Admin

GBP Sterling was trending at around its strongest level against the Euro since 2008 thanks to comments issued by Bank of England Governor Mark Carney. Carney asserted that the Bank of England, unlike the European Central Bank, has no plans to introduce additional stimulus, and that the BoE won’t be expanding on its quantitative easing programme. The pound had suffered following the release of the UK’s CPI data which many feel ‘final nail in the coffin’ for the Bank of England introducing interest rate hikes this year, but others have asserted that the development is unlikely to deter the BoE from making a move if the pace of growth in the UK is shown to improve in the months ahead. While a fall in inflation and some more measured numbers on growth have led investors to push back the timeline on a first rise in Bank of England interest rates, that outlook still contrasts with the threat of deflation facing the euro zone. As a result, sterling is likely to remain firm against the euro in today’s trading, in absence of any fresh data releases.

EUR The headline release from Europe yesterday was a verdict from Pedro Cruz Villalon, an advocate general at the EU Court of Justice, on the European Central Bank’s “big bazooka”, a plan unveiled in 2012 to calm fears of a eurozone break-up. The Outright Monetary Transfers programme – which to date is yet to actually be used – allows the central bank to step in and buy up the debt of troubled countries in unlimited quantities. Mr Villalon said the OMT was “compatible in principle” with European treaties, in effect allowing Mario Draghi, the ECB president, to launch a quantitative easing programme to buy up government bonds at its meeting next week. The euro stayed weaker on the back off this release, in anticipation of a flood of extra euros entering the market next week, and is likely to remain under pressure as markets await the ECB’s policy announcement next Thursday.

USD The US dollar remains at relatively elevated levels against the majority of its peers, with commodity markets still struggling. News from earlier this week that the World Bank had cut its growth forecasts had set the tone, with copper down as much as 8% to 6 year lows on concerns about slowing demand. Fears over the health of the world economy were further stoked by disappointing US retail sales, which has added to the negative mood and reduced risk appetite in the market. The retail sales figures dropped by 0.9% according to the Commerce Department yesterday, which the biggest decline since last January, after increasing 0.4 percent in November. Economists had expected only a 0.1 percent drop. Against the backdrop of a strengthening labor market and lower gasoline prices, they said sales should bounce back in January, with some saying December’s decline could be revised away. Many have sighted the reduction in fuel prices as a factor in increasing the US consumers propensity to spend. Looking over the entire holiday shopping period, sales at many retailers were solid, in sharp contrast to the Commerce Department data. The National Retail Federation, which looks at a subset of retail sales that excludes automobiles, gasoline stations and restaurants, said 2014 holiday sales increased 4.0 percent from a year earlier, the fastest since 2011.

CAD The Canadian dollar managed to recover after USDCAD hit fresh highs yesterday, with a terrible US retail sales figure helping the loonie regain some ground. Nonetheless, USDCAD remains on a clearly defined uptrend in general at the moment.

UK news

  • FT. Oil price falls will hurt Scottish economy, says Mark Carney: A falling oil price will hurt the Scottish economy but is positive for the UK overall, the governor of the Bank of England told lawmakers as he sought to distinguish Britain’s economic outlook from that of the euro zone.
  • FT. Stamp duty reforms yet to be felt in UK property market: Stamp duty reforms are yet to have a noticeable effect on UK housing activity despite widespread predictions they would deliver a fillip to the slowing market.
  • FT. No clear poll payoff from rising UK living standards: Economists believe that 2015 will be the best year for living standards since the financial crisis, but it is unclear whether households will feel enough of an improvement to benefit the Conservative party at the polls.
  • Reuters. Osborne confirms Bank of England 2 percent inflation target: British Chancellor George Osborne confirmed the Bank of England’s inflation target at 2 percent on Wednesday, and made minor changes to procedures when the target is significantly missed.
  • Bloomberg. London Housing Weakens as Election Adds to Buyer Uncertainty: London’s housing market remained weak at the end of 2014 and uncertainty in the run-up to the general election in less than four months may limit demand, according to the Royal Institution of Chartered Surveyors.
  • Telegraph. Britain will run a surplus in the good times, says Chancellor George Osborne: George Osborne announces plans to introduce a fiscal rule which would prevent the government from spending more than it earns in “normal” economic times.
  • Telegraph. Buy-to-let borrowing grows while other buyers struggle: Lending to landlords is up 9pc over the year, while lending to mainstream homeowners and first-time buyers falls.