Morning Report: 22 November 2016

22nd November 2016 By: Ranko Berich

GBP Sterling rallied yesterday, as Prime Minister Theresa May gave a speech to the Confederation of British Industry in which she stated that the UK will pursue “an arrangement that is going to work best for the UK and that will work best for the businesses in the UK”, implying that the government may pursue a ‘softer’ Brexit stance than had been thought. May also said that the Autumn Statement will include an “ambitious” plan for businesses and for Britain, increasing market expectations for some sort of fiscal stimulus. However, sterling is falling this morning after Canada rejected closing an immediate trading agreement with the UK, giving preference to the NAFTA, the EU and China before Britain. No important releases will be released today but Monetary Policy Committee member Kristin Forbes will speak at 11.30 BST in London.

EUR The euro strengthened against the US dollar yesterday, after markets reacted positively to news that that Angela Merkel will run for a fourth term in Germany, and that Francois Fillon won candidacy to run for French president. Mario Draghi spoke yesterday in France, calling for urgent action from governments in the Eurozone- presumably in the form of fiscal stimulus- while he pledged to maintain the ECB’s monetary stimulus. However, the criticism the ECB is facing regarding its current policy was, again, highlighted yesterday by European legislators. The question remains, therefore, what will be the scope of monetary stimulus in the next ECB meeting? Should the central bank extend the duration of the program a mere 6 months, markets could be disappointed, as happened in December last year, when the euro subsequently rallied sharply. No data will be released today in the Eurozone.

USD The dollar is struggling today again as it continues its lacklustre start to the week. The demand levels for the USD have dropped significantly after bond traders have now priced-in a 100% probabilities of a rate hike next month, which could also lead to taking profit activity ahead of tomorrow’s Thanksgiving festivity in the US. Market participants face now more complex issues related to the US dollar, such as how many more hikes will be due in 2017 and what will be the real impact of Trump’s fiscal stimulus program. There will be no data releases in the US today.

CAD The Canadian dollar continues to gain momentum thanks to a sustained rally in crude oil prices. A number of OPEC officials have affirmed that an agreement to cut production is likely in the short term, which has sent oil prices to 1-month highs. Wholesales sales data yesterday unexpectedly fell 1.2% in September. Retail sales data will be released today at 13.30 BST expecting a strong rebound from August’s contraction.

UK News

  • Reuters. May courts business seeking to avoid Brexit exodus. Prime Minister Theresa May set out plans to get big business behind her Brexit strategy on Monday, toning down plans to put workers on company boards and promising to spend billions of pounds on science, technology and research. In return, May told business leaders at a conference hosted by the Confederation of British Industry, that they needed to keep up their own investment, embrace corporate governance reforms and help spread prosperity across the country.
  • FT. Canada quashes hopes of quick UK trade deal after Brexit. Canada’s finance minister has dashed hopes of rekindling a close trading pact among the countries of the Commonwealth including Britain once the process of Brexit has been completed. “From our perspective, clearly the Nafta [North American Free Trade Agreement] relationship [with the US] is of huge importance. That’s our biggest relationship by a very big margin, so that’s important to us. And then the Ceta relationship [with the EU] opens up a very significant market. Our opening of exploratory talks with China?…?we do see as important and as the UK figures its next steps, that will be important too.”