Morning Report: 18 November 2015

18th November 2015 By: Ranko Berich

GBP Sterling was drifting lower early yesterday morning versus a strengthening US dollar, but some firm CPI data gave the pound a shot in the arm, meaning both GBPEUR and GBPUSD ultimately closed slightly higher. October’s price data from the Office of National Statistics showed the Consumer Price Index was still in deflation, changing -0.1% year on year. Even once food, fuel, and tobacco were excluded, core inflation was barely any better, rising 1.1%. This is the same level of core inflation currently seen in the eurozone, where the ECB’s monetary policy is still firmly on emergency settings. Of course, the UK’s economy is significantly stronger and the Bank of England may have reason to believe inflation will rise in the future, but the Bank’s caution around inflation is entirely understandable in light of yesterday’s data.

EUR The euro is showing signs of firming up slightly this morning after reaching fresh lows for the month against both sterling and USD. The recovery may well prove short lived, as there is little in the way of fundamental data coming out today that may boost the single currency. Yesterday, research company ZEW’s Economic Sentiment survey results were released, with the index for Germany rising. This indicates increasing expectations of growth among the institutional investors and analysts surveyed. The equivalent index for the eurozone fell slightly, while remaining indicative of overall growth.

USD The US dollar continued to strengthen against the euro, but found some resistance elsewhere, especially against AUD, NOK and CAD. US inflation data came out on expectations, with the Consumer Price Index rising 0.2% month on Month. Core CPI, which excludes food and energy, also rose 0.2%. This leaves year on year core inflation unchanged at 1.9%, just below the 2% level the Federal Reserve targets on its own inflation metrics. Later in the afternoon, Capacity Utilization remained stable at 77.5%, but Industrial Production fell 0.2% in October, disappointing expectations for a slight improvement after last month’s declines. This afternoon at 13:00 GMT, Federal Reserve decision makers Bill Dudley and Dennis Lockhart will speak on a panel discussion, but the topic is payment systems and monetary policy is unlikely to come up. Later in the afternoon, Building Permits and Housing Starts data will be released at 13:30. This evening at 19:00, meeting minutes from the Fed’s Federal Open Market Committee’s most recent meeting will be released. This is the last major FOMC release before December’s rate decision, so it will be picked apart in detail by analysts, traders and media for hints as to how the balance of opinion is likely to lie regarding rate hikes.

CAD The loonie did not post any further losses to USD after the hammering it received on Monday, but remains substantially weaker than at any time since early October. No data was released yesterday, as will be the case today, meaning developments elsewhere, especially in crude oil, will prove influential as always on CAD. Today’s Crude Oil Inventory data from the United States, released at 15:30 BST, will be the main event for crude and for CAD.

UK News

  • FT. Minimum wage prompts employers to boost productivity: Half of all employers expect to be affected by next year’s steep increase in Britain’s minimum wage, prompting many to try to boost their productivity in response.
  • FT. UK inflation below zero for second month: Prices in the UK fell for the second month in a row in October, as lower food and energy prices continued to keep down the cost of living.
  • Reuters. UK consumer prices dip again in October, but look set to head higher: Britain marked two consecutive months of falling consumer prices for the first time on record in October, but economists said the bout of mild deflation is likely to end in the next few months.
  • Guardian. Tax credit cuts will hit poorest regions hardest, says TUC: General secretary Frances O’Grady calls on George Osborne to ditch his planned cuts at next week’s spending review.