Morning Report: 18 December 2015

18th December 2015

GBP Sterling continued to see significant losses to the US dollar yesterday, continuing the prevailing trend from the last few weeks. Retail Sales grew a whopping 1.7% month on month in November, and the underlying trend in the data, as measured by the three month average in the quantity bought, showed its 23rd consecutive month of expansion. Black Friday and holiday shopping contributed to the exceptional performance, but the data was seasonally adjusted. The CBI Industrial Order Expectations index fell to -7, indicating that the surveyed producers expect falling order volumes.

EUR The euro has proved impressively resilient to the dollar strength that has been seen elsewhere, although it did weaken slightly to the surge of dollar strength seen yesterday. The IFO Business Climate survey, which tracks expectations of future growth among institutional investors and analysts, fell slightly to 108.7. This is nonetheless a high number compared to the rest of the year, and shows that investor confidence has not been dented by December’s disappointing ECB conference.

USD Dollar strength remained the dominant theme of currency markets yesterday, with commodity currencies such as CAD, AUD and NZD being among the biggest losers. The afternoon’s data was fairly positive, with the exception of the Philadelphia Fed’s Manufacturing Index, which fell into negative, indicating that the surveyed businesses are experiencing worsening conditions. Weekly unemployment claims were low at just 271,000 for the week, and the Conference Board’s Leading Index rose to 0.4%. The index is an amalgamation of various forward looking indicators, so the growth here is a good sign for the prospects of the US economy as a whole. Today at 14:45 GMT, the Services Purchasing Managers Index will be released, followed by a speech from the Federal Reserve’s Jeffrey Lacker at 18:00.

CAD The Canadian dollar got absolutely slaughtered yesterday. At its weakest point yesterday, the loonie was a more than 5% lower against USD than it was at the start of the month. Further falls in crude oil were, of course, the main catalyst for yesterday’s moves. Oil markets appear to be in freefall, and until the losses in spot crude oil prices can be stemmed, there seems to be little hope for the loonie. Today at 13:30 GMT, monthly inflation data including the Consumer Price Index will be released alongside Wholesale Sales.

UK news

  • Reuters. Fed hike clears path for BoE’s Carney – but not right away. The first U.S. interest rate rise in nearly a decade helps clear the way for a similar, long-anticipated move by the Bank of England. But even so, Governor Mark Carney will be in no rush to follow suit.
  • Daily Mail. Mark Carney hints he may lead Bank for eight years saying he has ‘so much more to do’: Mark Carney has refused to rule out serving a full eight-year term as governor of the Bank of England, saying he has ‘so much more to do’.