Morning Report: 16 November 2015

16th November 2015 By: Ranko Berich

GBP Sterling rallied last week, recovering from the six-month lows seen in the first week of November. Although this trend continued on Friday it was undermined by the fundamental data, with construction output falling 0.2% in September, rounding off three months of sharp declines. The Conference Board’s Leading Index fell to -0.3%, meaning the forward looking data that comprise the index indicate further slowing in economic activity in the immediate future. Today’s Rightmove House Price Index showed a 1.3% fall in prices in November. However, the labour market continues to perform exceptionally well, as last week’s data showed, but in isolation this is unlikely to mean much for monetary policy or for sterling. This week’s biggest data release, Consumer Price Index data on Tuesday, will be closely watched for signs of the strong labour market finally contributing to an improvement in inflation.

EUR The euro’s downwards trend, which had been fairly consistent since October, appeared to pause last week, with eurodollar failing to reach any new lows after Tuesday. Friday’s data was relevant: eurozone Gross Domestic Product growth slowed to 0.3% quarter on quarter in Q3, falling short of expectations and underlining just how far the economy has to go, despite the improvement in survey data that has recently been seen. This morning at 10:00 GMT the eurozone’s Consumer Price Index will be released, and 15 minutes later European Central Bank President Mario Draghi will speak in Madrid. Later in the week, ZEW will release its Economic Sentiment survey tomorrow, and the European Central Bank will release its latest Meeting Accounts on Thursday.

USD USD has strengthened against almost the entire G10 overnight, after the trade weighted DXY index reached its highest level since January last week. Friday’s economic data was actually fairly disappointing, belying the generally firm tone of USD. Core Retail Sales grew 0.2% in October, a disappointing improvement after last month’s contraction. Producer Prices, which are a major leading indicator for Consumer Prices, fell 0.4% on falls in specific product categories. This week’s data calendar will need to be more impressive to maintain USD’s momentum, although expectations are low for today’s Empire State Manufacturing Index, which will be released at 13:30 GMT. The week’s most important releases will be tomorrow’s Consumer Price Index and Thursday’s Federal Open Market Committee Meeting Minutes.

CAD The loonie was the only G10 currency to strengthen against USD overnight, although the rally pales in comparison to the losses seen last Thursday and Friday. It was utter carnage in crude oil markets last week, bringing crude benchmark WTI to its lowest point since August on Friday, and CAD will be sensitive to any further losses this week. Today at 13:30 GMT, September Manufacturing Sales will be released alongside international Securities Transaction, followed at 14:00 by Existing Home Sales. Later in the week, inflation data will be released on Friday.

UK News

  • Reuters. Surging services exports augur healthier UK trade future: In a first for a major economy, Britain’s exports of services from debt swaps to Downton Abbey are close to overtaking those of manufactured goods, offering a way to narrow a persistent trade deficit.
  • Reuters. UK construction output falls for third month in September: British construction output fell unexpectedly for a third consecutive month in September, in figures that confirm the sector’s drag on growth in the third quarter, official data showed on Friday.
  • Daily Mail. British households benefit from falling cost of living as average prices stay low into the autumn: The average price of goods and services continued to fall into the autumn, official figures are set to show this week, providing a further boost to household finances.
  • Guardian. UK manufacturers urge George Osborne to maintain spending on innovation: Manufacturers’ organisation EEF says firms want a stable, predictable business environment.