Morning Report: 17 November 2015

17th November 2015 By: Ranko Berich

GBP Sterling continued to strengthen against the beleaguered euro yesterday, but did not manage to perform as well against USD. Today’s Consumer Price Index release remains perhaps the only data point that has the potential to reverse sterling’s fortunes against the dollar. Headline inflation has been languishing at or below zero for more than half a year now, and this is hardly expected to change as a petrol prices have stabilised, but not yet improved. The Core inflation series, which excludes food and fuel, is more relevant: if any deterioration is seen from the current level of 1%, serious questions will be raised about the Bank of England’s hands off approach to monetary policy. Eurozone core inflation, for example, sits at 1.1% year on year, a reading which has red lights flashing at the European central bank. Alongside CPI, House Prices and Producer Prices will also be released at 09:30 GMT.

EUR The euro took yet another beating overnight, and has fallen to its lowest level vs USD since April. Yesterday’s Consumer Price Index data actually showed inflation exceeding expectations, with Core CPI rising to its highest level since 2013. However, the euro was weighed down by comments from ECB decision makers Ewald Nowotny and Peter Praet, who separately emphasized how serious the threat from low inflation or deflation is to the eurozone. The implication, of course, is that the ECB is inclined towards expanding its QE programme to avoid a “Japan” scenario of consistently falling prices and investment. Praet went as far as to say that the ECB saw a case for re-examining the current lower bound on deposit rates, which are currently well in negative territory at -0.2%. Today at 10:00 GMT, ZEW will release its Economic Sentiment survey results. As usual, the Germany-specific index will be closely watched due to its decent sized sample of institutional investors and analysts.

USD Dollar strength remained a major theme yesterday and overnight, with the greenback in particular taking advantage of euro weakness off the back of dovish comments from European monetary policy makers. Expectations are therefore rather high for today’s Consumer Price Index data, which will be released at 13:30 GMT. Both the main inflation series and Core CPI, which excludes food and fuel, will be released. Although the Fed’s officially preferred inflation measure, the PCE price index, remains well below the Fed’s 2% target, Core Inflation was 1.9% year on year last month. Later in the afternoon at 14:15, Capacity Utilization will be released alongside Industrial Production, followed at 15:00 by the NAHB Housing Market Index and Mortgage Foreclosure data.

CAD The loonie reached yet another fresh low against USD yesterday but recovered quickly, matching the fortunes of crude oil, which had a volatile session that saw a dramatic mid-afternoon tumble followed by recovery. The downwards trend on both the assets remains very clearly downwards. Yesterday’s weak Manufacturing Sales data did not help the loonie, showing sales dropping 1.5% in September. No data will be released today, meaning momentum and crude oil markets will continue to determine CAD trading.

UK News

  • Reuters. Osborne agrees lower budgets for seven government departments: Chancellor George Osborne said on Tuesday seven government departments had agreed to cut day-to-day spending in real terms by around 21 percent by 2019-20 on an accumulative basis.
  • Guardian. UK inflation forecast to remain negative: Consumer prices index (CPI) has been dragged down by tumbling global commodity prices and the effects of a strong pound.
  • Daily Mail. November dip gifts buyers cheaper homes before Christmas, but Rightmove warns prices will pick up in 2016: The traditional autumn house price lull has brought a chance for home hunters to buy a cheaper property, but a smaller than expected dip could spell a steeper rise for 2016, says property listing website Rightmove.