Morning Report: 24 November 2015

24th November 2015 By: Ranko Berich

GBP Sterling extended its losses from Friday over the course of yesterday’s session, losing ground even to the beleaguered euro. Today is a new day, however, and with Mark Carney and other Bank of England decision makers testifying before the Treasury Committee, there is potential for a sterling reversal. The Bank of England has been universally written off as averse to rate hikes, given the Monetary Policy Committee’s habit of promising tighter policy after an improvement in the fundamental data, only to walk back expectations a few months later. The data picture in the UK is indeed improving: although inflation is low, growth continues and wages are rising. But this has not been enough for the BoE, which has chosen a policy of waiting until it sees the whites of inflation’s eyes before considering tightening policy. Robust questioning can be expected from lawmakers looking to probe the Bank’s approach today, with testimony beginning at 10:00 GMT. At 11:00, the Conference Board’s Realized Sales report for November will be released.

EUR A firm crop of Purchasing Managers Indices in the morning contributed slightly to the euro firming up against GBP, but there was no stopping the US dollar yesterday and EURUSD fell to fresh lows. Manufacturing and Services PMIs for France, Germany and the eurozone were generally above expectations, meaning that the net level of optimism reported by those answering the surveys was increasing. In particular, the sub index for employment growth reached a four and a half year high, which is particularly encouraging. All this optimism is unlikely to sway the European Central Bank, however, which looks to be currently reloading it’s bazooka for more quantitative easing in the near future. This morning at 09:00 GMT, Germany’s IFO Business Climate survey, another widely watched sentiment index, will be released.

USD The US dollar was rampant yesterday, particularly against the euro where it reached its strongest level in seven months. Some minor survey data was released in the afternoon, with Markit’s Manufacturing Purchasing Managers Index reading 52.6 in November, its lowest level in two years but nonetheless above the 50 level that indicates growth. Two decision makers from the US Federal Reserve were on the wires, with Fed Chair Janet Yellen slamming politician Ralph Nader in an open letter. Nader had previously written a rather impertinent letter urging Yellen to hike rates, in which he asked the most powerful economist in the world to sit down with her husband (a Nobel Prize-winning economist) and reconsider the Fed’s prevailing narrative. Yellen’s reply put Nader in his place, saying that higher rates would be of no use to savers if the economy sputtered, and re-iterated that rates would rise when the Fed was good and ready. The Fed’s Daniel Tarullo, one of the few dovish dissenters from the Fed’s current hawkish tilt, said yesterday that he was still worried about too-low inflation. The comments suggest that that along with Lael Brainard he remains the FOMC’s most prominent dove and that recent events have not challenged his aversion to rate hikes. Today at 13:30 GMT, the second release of Gross Domestic Product Growth is due for release, followed at 15:00 by the CB Consumer Confidence Index and the Richmond Fed’s Manufacturing Index.

CAD The loonie had a very eventful day yesterday, at first weakening in the morning to almost reach multi-year lows vs USD, before strengthening in the afternoon. Crude oil prices jumped yesterday on chatter on the news wires, about official Saudi Arabian sources saying it was willing to co-operate with other suppliers to stabilise prices. The statement places extra attention on December’s OPEC meeting, as the oil cartel has so far shown itself willing to continue increasing production, even in the fact of falling prices. Today at 20:30 GMT, the Bank of Canada’s Lynn Patterson will speak at the University of Regina.

UK News

  • Reuters. Osborne to bump up UK borrowing target by 5 billion pounds – Reuters poll: Chancellor George Osborne will have to borrow 5 billion pounds more this financial year than he planned in July, according to a Reuters poll conducted before a budget statement he is due to deliver on Wednesday.
  • Reuters. Risk of market jolt on Brexit could complicate BoE decision: UK markets have not even begun to discount the chance that Britain could vote to leave the European Union next year, raising the risk of a blowup closer to the vote and complicating the timing of any Bank of England interest rate rise, top investors say.