Morning Report: 2 December 2015

2nd December 2015 By: Ranko Berich

GBP Sterling kicked off the last month of the year advancing against EUR and USD on the back of the Bank of England’s stress test results. The BoE’s authorities shed some light on the future of financial regulation in the UK, indicating that they prefer to strengthen lenders rather than tame the credit cycle, proposing the introduction of a countercyclical capital buffer rather than increasing lender’s minimum required reserves. Nonetheless, this morning the story has changed for the pound, as GBP is falling versus most of its peers at the time of writing. The BRC shop price index, a private leading inflation indicator, posted a -2.1% change in retail prices, the worst reading in the indicator’s history. The drop was led by significant drops in clothing prices (-6.3%). Markit will release its construction PMI later today at 09.30 GMT.

EUR The euro gained yesterday after some positive fundamental data was released across the Eurozone. Manufacturing PMIs were released in a number of countries, showing improvements in business confidence and optimism. Moreover, the unemployment change in Germany fell by 13,000 people, a record and unexpected low. The good news continue today, as the same indicator in Spain has also surprised the markets with an unexpected drop. The National Statistics Institute indicated that unemployed people dropped by 27.071, the sharpest decline registered in November to date. Eurostat will release the CPI flash estimate for the Eurozone as a whole at 10.00 GMT, although not much reaction is expected ahead oftomorrow’s ECB most important meeting of the year.

USD The greenback seemed undecided yesterday. After reaching new highs versus GBP and EUR at the end of November, the dollar kicked-off the last and most important month of the year on the back foot by falling versus most of the G10 currencies. Markit and ISM’s Manufacturing PMIs contradicted each other yesterday. Markit survey posted a solid 52.6 in November, while ISM indicated that the manufacturing sector contracted in November. Such uncertainty did not favour the dollar which remained bound in a tight range overnight. Today dollar buyers and sellers may get some action back as three members of the FOMC, notably Janet Yellen, the Fed Chair, have a speech scheduled. Also, ADP estimate new payrolls is scheduled to be released at 13.15 GMT.

CAD Yesterday was an eventful day for CAD. Canadian GDP shrank 0,5% in September, the biggest drop since 2009. CAD fell sharply versus all G10 currencies after the news, highlighting the drop versus other commodity currencies such as AUD and NZD. Today is a critical day for CAD as the Bank of Canada will communicate its last interest rate decision at15.00 GMT. No changes are expected but a further rate cut cannot be discarded.

UK News

  • Reuters. British shop prices fall faster in November. A fall in British shop prices accelerated and was the joint weakest reading on record in November, the British Retail Consortium saidon Wednesday, a latest sign that inflation is likely to remain subdued.
  • Reuters. British house price growth to ease, but will still outstrip pay – Reuters poll: British home prices will rise more slowly next year than in 2015 despite a lack of newly-built properties coming on to the market and record low interest rates for at least another several months, a Reuters poll of housing analysts found.