Morning Report: 18 January 2016
18th January 2016 By: Ranko Berich
GBP Sterling starts the week very much on the back foot, having taken yet another plunge against USD on Friday after fresh falls in the price of crude oil. Construction output was shown to have fallen 0.5% in November, according to data released by the Office for National Statistics on Friday, adding to sterling’s misery. This week’s data calendar will revolve around inflation and labour market data, which will be released on Tuesday and Wednesday respectively. Considering the later falls in crude the oil prices, the headline Consumer Price Index may well fall into deflation, and expectations for the labour market are also low after the Bank of England last week said that wage growth had probably slowed down in recent months. All in all, the bar seems rather low for an upside surprise on any of these releases, and with sterling still in freefall, some good news may be welcome.
EUR The euro continued to benefit from a risk-off mood last week, and with fresh falls to crude oil prices and important Chinese data releases scheduled tomorrow, this week certainly carries the potential for more of the same. The week’s calendar begins in earnest tomorrow, with eurozone inflation data out at the same time as the ZEW sentiment survey, which is widely watched. Later in the week, the European Central Bank will announce its latest policy decision and give a press conference. After December’s ECB saw the euro strengthen as the measures announced fell widely short of expectations, the ECB may choose to justify its previous decisions, or perhaps hint at an about face and more stimulus.
USD Last week’s events were generally positive for the US dollar, which went on a rampage against currencies correlated to commodities and emerging markets, while also tearing sterling to pieces. However, Friday’s data was quite poor, with Retail Sales and the Producer Price Index falling well short of expectations. PPI is affected by crude oil prices and Retail Sales have been growing strongly in recent months, but the releases nonetheless took some of the edge of USD’s week. Today is Martin Luther King Day in the United States, and tomorrow’s calendar is rather slow. Things pick up on Wednesday, with the release of monthly Consumer Price Index data, but all in all this is a rather slow week for US data.
CAD Friday saw the major crude oil benchmarks close below $30 a barrel, further compounding the loonie’s misery. News emerged over the weekend that Iranian oil would be re-entering international markets, and that the Islamic Republic planned to increase its production, despite the oversupply persisting in the market. Iran is locked in something of a regional chess match with another authoritarian Middle Eastern regime, Saudi Arabia, and may see geopolitical value in pressuring its rival’s government finances, which are entirely reliant on energy revenue. All of this means that for now, there is little hope for crude, or for the Canadian dollar. This week’s Bank of Canada meeting on Wednesday is therefore a wild card: with crude prices in freefall, monetary easing is a distinct possibility.
- Reuters. UK construction output sees biggest annual drop since 2013: Britain’s construction output unexpectedly fell in November, seeing its biggest annual drop since May 2013 in the latest sign that the economy may struggle to bounce back strongly from a mid-year slowdown.
- Telegraph. Britain on track for growth streak despite global turmoil, claims EY: British businesses and the economy are set to benefit this year thanks to bigger household budgets, house price growth and increased appetite for exports, according to economists at Ernst & Young’s Item Club.