Morning Report: 21 November 2016

21st November 2016 By: Ranko Berich

GBP Sterling begins the week on the back foot, falling against all G10 currencies at the time of writing. Comments last week by the German Finance Minister and the US ambassador in the EU, who raised concerns about the implications of Brexit for the UK economy, are the main cause of the weakness. Looking to the week ahead, Wednesday is the most important day for sterling, with Chancellor Phillip Hammond set to release the Autumn Statement. Hammond has pledged to unveil a series of fiscal reforms intended to reduce any negative economic impact of Brexit to the UK economy. Depending on the nature of the policy announcements, markets could view the changes to provide a Trump-like source of stimulus. Markets have assumed that Trump’s economic plan in the US is likely to result in interest rates being raised at a faster pace, which has been a source of strength for the US dollar, and therefore if we see an equivalent shift in market expectations for the UK, it could well provide a boost to the pound.

EUR The euro kicks off the week rising against most of the G10 FX after two weeks of losses. EURUSD ended last week at the lowest level since December last year, hammered by increasing short-term yields in the US and falling German bund yields in the Eurozone. This week’s calendar is dominated by economic survey-based data, which is released on Wednesday in the form of Manufacturing and Services PMIs. The well-known IFO Business Climate index is released on Thursday. No data will be released today, but Mario Draghi speaks in Strasbourg before the European Parliament in relation to the ECB’s Annual Report.

USD USD extended the post-election gains on Friday, before taking profit activity sent the dollar slightly off its highs. The dollar is falling against most of the G10 currencies on Monday morning, suggesting that US dollar demand is falling compared to the previous two weeks. The greenback advanced with expectations of a Trump fiscal expansion and bond markets fully pricing in an interest rate hike next month. As a result, US stock markets received the biggest weekly inflow since December 2014 while bonds outflows recorded the largest levels since 2013. Investors now raise concerns about the resilience of the USD rally and they could be looking for stronger signals before resuming the purchase of the greenback.

CAD Crude oil prices are defying the US dollar’s strength after headlines suggested the OPEC countries are near to agree a production cut, as a result the loonie is higher this morning against the greenback. USDCAD reached last week its highest point since February, but a 5% rally in crude oil prices and good inflation data are giving CAD a respite ahead of this week’s calendar, which includes wholesale sales and retail sales data series, released today and tomorrow respectively.

UK News

  • Reuters. Hammond says budget options constrained by high debt. Britain’s first budget plan since the Brexit vote will not include a big new spending push because of “eye-wateringly” high public debt levels, but will have some help for the economy and struggling families, the country’s Chancellor said.