Morning Report: 23 November 2016

23rd November 2016 By: Ranko Berich

GBP Sterling continues to fall from this week’s highs ahead of today’s Autumn Statement. After the Brexit vote, Chancellor Phillip Hammond pledged to end years of austerity in order to boost the economy against any possible negative outcome. Hence, markets expectations have been increasing in relation to an increase in government spending, and UK financial markets and the pound benefited from this scenario as a result. However, an increasing current account deficit and a hole of more than £100bn in public finances could lead to a laxer stimulus programme, and the risk that markets react negatively is significant. The divergence in opinions suggests that today could be a very volatile day for sterling. Phillip Hammond gives his Autumn Statement to 12.30 GMT.

EUR The single currency is trading down against the USD but has recovered most of this week’s initial losses against sterling. The euro has remained out of the spotlight for the last couple of days, but the release of several economic survey indices earlier this morning shows improving manufacturing and services sector conditions in the eurozone. No more data will be released in the eurozone today.

USD The US dollar has had somewhat of a mixed time this morning ahead of today’s FOMC minutes and tomorrow’s Thanksgiving holiday. Investors will look for a confirmation of an interest rate hike in December in today’s FOMC minutes. Fixed income traders have completely priced-in a hike in December and, unless there are clear signals that more hikes will follow early in 2017, it is likely to be a non-event for the dollar. It is worth mentioning that all equity benchmarks in the US have registered new all-time highs this week, stimulated by increasing optimism in the economy and fiscal stimulus prospects, but with investors being away for Thursday and Friday of this week, some profit taking activity could push the dollar and equities lower towards the end of the day. Core durable goods orders data will be published at 13.30 GMT.

CAD The loonie fell yesterday after core retail sales data showed the fourth week of non-positive growth. The slowdown in retail sales came despite the stimulus from the Bank of Canada which could now be erring towards cutting rates again in its next policy meeting. No data will be released today in Canada, but crude oil inventories will be published in the US, which could, of course, affect CAD.

UK News

  • FT. Philip Hammond eyes housing sweetener in Autumn Statement. Philip Hammond will put cheaper housing at the heart of his first Autumn Statement on Wednesday, but his efforts to help “just about managing” Britons will be tightly constrained by a £100bn deterioration in the public finances and fears of a Brexit shock. Mr Hammond’s statement — the first “Budget” of Theresa May’s government — will see the chancellor grappling with what he calls “eye-watering” debt levels and pushing back the goal to run a fiscal surplus into the early 2020s.