Morning Report: 27 January 2016

27th January 2016 By: Ranko Berich

GBP Sterling enjoyed a strong rally yesterday, buoyed by a mild improvement in risk appetite. We also saw testimony from the Bank of England’s Mark Carney to Parliament’s Treasury Select Committee, where he covered a range of topics including buy to let, the Bank’s regulatory mandate, and the economic risks of Brexit. Although Carney was careful not to specifically mention the referendum, he did say the UK’s large current account deficit was a significant risk, and that the UK relied on the “kindness of strangers” and favourable investing conditions to fund this deficit. Despite the cautious tone of his assessment of financial risks to the economy, markets were more focussed on the rallying commodity markets, which helped boost the pound. Today at 09:30 GMT, monthly Mortgage Approvals data from the Bank of England will be released, while the BoE’s Shafik will speak at 19:30, with the text of her speech released three hours beforehand.

EUR The euro continued to strengthen yesterday, having started the week on the back foot vs USD before beginning to rally. Several minor board members of the European Central Bank will speak today, including board members Mersch and Lautenschlaeger at 11:00 and 13:00 GMT respectively. The topics of the speeches are removed from monetary policy, but as always an offhand comment or hint can be relevant for the euro.

USD It’s a big day for the US dollar, which weakened against most of the G10 overnight. Yesterday’s data releases were a mixed bag, with the Markit Services Purchasing Managers Index and Richmond Manufacturing Index, both comprised of survey responses, fell slightly short of expectations for their latest monthly iterations. However, the Conference Board’s measure of Consumer Confidence rose to 98.1. Today at 19:00 GMT, the Federal Reserve will release its latest Federal Funds Rate decision, accompanied by a statement. After last month’s hike, and this year’s volatility and associated tightening in financial conditions, another increase in rates is highly unlikely. However, the Fed has telegraphed its intentions to further increase interest rates this year, and so it will be interesting to see if the rate statement tries to walk back these expectations in some way.

CAD CAD strengthened yesterday afternoon, as crude prices posted a modest recovery. The crude oil rally may have been small in dollar terms, with the Brent benchmark rising from around $29 to $32, but it was enough to cause a very improvement in CAD’s fortunes. Much of the improvement in crude oil was based on comments from Iraq’s oil minister that Saudi Arabia and Russia were more receptive to the prospect of cutting production in order to support price. Today at 15:30 GMT, crude oil inventory data will be released in the United States.

UK News

  • Daily Mail. Average UK home hits nearly £200k in January and house prices are forecast to keep rising due to shortage of new homes: The average UK house price has hit nearly £200,000 and the UK property market shows no signs of slowing in the year ahead, according to a new report.
  • Reuters. UK mortgage approvals fall to seven-month low in December: British banks approved the fewest mortgages for house purchase since May last month, though overall approvals were still up by almost a fifth on December 2014, industry figures showed on Wednesday.
  • Reuters. First BoE hike pushed back to fourth quarter, second delay in three weeks: LONDON – Expectations for the first hike in interest rates from the Bank of England have receded to the fourth quarter, the second time in three weeks that analysts have pushed back their forecasts, a Reuters poll found on Tuesday.