Morning Report: 16 December 2015

16th December 2015 By: Ranko Berich

GBP Sterling weakened yesterday, as Bank of England Governor Mark Carney played down the prospects of the BoE following the Federal Reserve in any possible rate hikes. Carney, speaking in an interview with the Financial Times, said conditions were not right for raising rates. Instead, the BoE would focus on how it could manage financial risks and credit growth in a low interest rate environment. Carney’s comments come after his fellow MPC member Minouche Shafik said earlier this week that she would not vote for rate hikes until wage growth improved significantly. At this stage, one does not even need to read between the lines to understand what the Bank of England is saying: rates are not going anywhere until inflation and wages are unambiguously increasing. Today’s Labour Market data will therefore be closely watched upon release at 09:30 GMT, especially the Average Weekly Earnings Index.

EUR The euro has weakened slightly to USD in the last 24 hours, but remains strong against sterling. Yesterday’s ZEW Economic Sentiment survey results showed business optimism increasing in Germany and the eurozone as a whole, indicating that despite no extra stimulus eurozone analysts and investors remain confident about the future. Today at 10:00 GMT, eurozone inflation statistics will be released.

USD It’s a big day for the US dollar, which is striking a slightly firmer tone versus the rest of the G10 this morning, ahead of today’s incredibly important Federal Open Markets Committee release at 19:00 GMT. The FOMC will announce its latest official rate decision, as well as release a Monetary Policy Statement. Anticipation is at fever pitch for the meeting, and markets are pricing in rate hikes very aggressively, meaning the actual impact of an increase in rates may be limited. Should the Fed disappoint expectations in any way, the US dollar could well end up selling off, just as the euro strengthened earlier this month despite the European Central Bank cutting interest rates. Yesterday’s data seemed to support the case for a rate hike tonight, with the Core Consumer Price Index rising 2.0% year on year. Before the FOMC releases, monthly Building Permits and Housing Starts data will be released at 13:30, along with Capacity Utilization and Industrial Production at 14:00.

CAD USDCAD traded back and forth yesterday, at first falling in the morning before weakening to test the week’s highs in the afternoon. No fundamental data was released, but crude oil continues to languish near lows for the year. Today’s Crude Oil Inventories in the United States at 15:30 GMT may move crude and CAD, but the most significant event for the loonie today will be the FOMC rate announcement in the United States at 19:00.

UK news

  • FT. Jobs created at fastest rate for 20 years: Companies added jobs at the fastest rate for at least two decades in 2014-15, almost 700,000 across the UK, according to new research.
  • Reuters. BoE will take action on buy-to-let mortgages, says Carney: Bank of England Governor Mark Carney said the central bank will take action to regulate lending for mortgages used by landlords to buy properties, in a newspaper interview published on Tuesday.
  • Reuters. UK inflation edges back above zero in November: British inflation returned to positive territory for the first time in four months in November, but remained close to zero as it has for most of this year, official figures showed on Tuesday.
  • Reuters. UK households better placed to cope with rate hike – BoE survey: Britain’s first rate hike in nearly a decade should have little impact on spending as households are better placed to cope with higher borrowing costs than last year, a survey commissioned by the Bank of England showed on Tuesday.