Morning Report: 17 November 2016

17th November 2016 By: Ranko Berich

GBP Sterling moved towards the top of this week’s trading range against the euro yesterday, while remaining relatively flat against the dollar. Monthly labour market data from the ONS showed Unemployment dropping to just 4.8%, and 11 year low. Average Weekly Earnings rose 2.3% year on year, the same as last month. Despite the low level of wage growth and the consistent wage growth, there were signs that the pace of jobs growth was slowing. The rate of employment growth slowed considerably compared to recent trend, while the number of people claiming unemployment benefits rose. Alleged comments by Foreign Secretary Boris Johnson drew headlines, after he was accused of “insulting” Italian minister Carlo Calenda. Calenda, the former Italian envoy to Brussels, told Bloomberg TV that Johnson had claimed that “Italy would sell less prosecco” if Britain were to be excluded from the customs union, to which Calenda mockingly replied “OK, you’ll sell less fish and chips”. Eurogroup president Jeroen Dijsselbloem described Johnson’s ambitions for the UK to be outside the EU customs union but in the single market as “impossible” and “not available”. Political headlines seem to be losing their ability to move sterling significantly, but if yesterday’s exchange is anything to go by this may not remain the case for long in 2017.

EUR The euro reached fresh lows against the greenback yesterday during a burst of intense dollar strength, but has since clawed back some of its losses. No headline euro data was released yesterday, but today at 10:00 GMT eurozone Consumer Price Index data will be released, followed at 12:30 by the European Central Bank’s latest meeting minutes. The ECB’s last press conference was rather dull, but it was interesting to note that Mario Draghi declined to comment on the likelihood of the ECB extending its current quantitative easing programme in 2017. This is unusual, considering the fact that inflation still remains woefully below target. The minutes will therefore be worth watching as a potential source of clues regarding the balance of opinion among the ECB’s Governing Council.

USD Dollar strength continued to build yesterday as the weighted index DXY reached its highest level since 2003, smashing above the 100 level that has repeatedly acted as resistance for the dollar over the last two years. Yesterday’s spattering of mid tier US data was generally negative, including a big miss on the Producer Price Index, while Industrial PRoduction also fell below expectations. Today at 13:30 GMT more US data will be released, in the form of Building Permits, the Consumer Price Index, the Philly Fed Manufacturing Index, Housing Starts, and weekly Unemployment Claims. But the afternoon’s main event is likely to be testimony from Federal Reserve Chair Janet Yellen to lawmakers from the Joint Economic Committee, at 15:00. Considering the recent election outcome it’s possible lawmakers may look to score political points by attacking Yellen and the Fed, as they have done in the past, making for a potentially explosive testimony.

CAD The loonie extended its gains yesterday, as crude oil prices continued to rally. Canadian Manufacturing Sales also exceeded expectations to rise 0.3%, an unexpected development considering last month’s already impressive 0.9% spike. Today at 13:30 GMT Foreign Securities Purchases data will be released, and at 15:30 the Bank of Canada will release it’s BOC Review, a collection of articles and publications thought noteworthy by Bank staff.

UK News

  • FT. UK faces £100bn Brexit hole in budget. Autumn Statement to reveal hit to growth and tax income over next five years. Philip Hammond will admit to the largest deterioration in British public finances since 2011 in next week’s Autumn Statement when the official forecast will show the UK faces a £100bn bill for Brexit within five years.
  • Reuters. Colder weather helps UK retail sales growth to 14-year high – ONS. British retail sales surged in October, as colder weather boosted clothing sales and supermarkets cashed in from Halloween, lifting annual sales growth to its highest in more than 14 years. Thursday’s official data reinforce the robust picture of health given by British consumers since June’s vote to leave the European Union, even if the one-off factors lifting demand last month are unlikely to be sustained.
  • BBC. UK economy grows 0.5% in three months after Brexit vote. The UK’s service sector helped the economy to grow faster than expected in the three months after the Brexit vote, official figures have indicated. The economy expanded by 0.5% in the July-to-September period, according to the Office for National Statistics. That was slower than the 0.7% rate in the previous quarter, but stronger than analysts’ estimates of about 0.3%.