Morning Report: 28 January 2016

28th January 2016 By: Ranko Berich

GBP Sterling can’t seem to catch a break this week, taking its latest knock downwards yesterday with concerns increasing that a British exit from the European Union is more likely than previously believed. Analysts from Berenberg, the venerable German investment bank founded in 1590, raised their estimate of the likelihood of Brexit, citing polls increasingly reflecting pro-exit sentiment. The Nationwide Building Society released its House Price Index, showing that properties purchased with mortgages backed by Nationwide had increased 0.3% in price in January, slightly down from the 0.8% spike seen in December. The British Bankers Association, in the meantime, reported that mortgage approvals had fallen slightly in December to 44,000 compared to a high of 47,000 and a low of 35,700 in 2015. This morning has seen the release of Gross Domestic Product growth in the fourth quarter of 2015, showing that GDP rose 0.5% as expected. Although this leaves year on year growth at 1.9%, the lowest since 2013, the release does show the UK economy is still growing and is not facing a sharp economic slowdown.

EUR The euro continued to strengthen yesterday, as last week’s “Draghi effect” continues to fade and the US Federal Reserve steered well clear of rate hikes. GFK’s German Consumer Climate index remained flat in January, suggesting that the continued falls in producer prices and global economic turmoil had not yet dented consumer confidence in the eurozone’s most important economy. Throughout this morning, German Consumer Price Index data will be released on a regional basis, culminating in Germany wide CPI at 13:00 GMT.

USD Last night’s rate announcement from the Federal Open Market Committee had little effect on the US dollar, which continued to weaken against the euro and strengthen versus sterling. As expected, the FOMC did not change interest rates, saying it would only do so once economic conditions justified further tightening. Aside from some platitudes about monitoring global developments closely, it was an unremarkable statement that betrayed little about the FOMC’s long term intent. Today’s data releases begin at 13:30 GMT; with the release of Durable Goods Orders and weekly Unemployment Claims, followed at 15:00 by Pending Home Sales.

CAD The loonie has been rather flat since the impressive rally seen on Tuesday, and yesterday’s session was somewhat of a non-event, as crude oil markets appeared to take a small break from the feverish volatility that has been the norm recently, with prices instead recovering steadily. Crude oil inventory data in the US was ominous, however, with inventories reported to have yet again increased in North America. With no sign in sight of the supply glut in North American markets having even begun to dissipate things still look fairly grim for crude oil and the loonie, but for now at least this seems to be of little concern for the loonie.

UK News

  • Reuters. EU competition boss says could look at UK’s Google tax deal. The European Union could investigate a back tax deal agreed by Internet group Google and Britain, its competition boss said on Thursday.
  • Guardian. Ministers urged to spell out details of plan for UK to take in Syrian children. Move to take in more unaccompanied child refugees is welcomed but ministers under pressure to say how many children it will take from Europe.
  • FT. New bank regulator Andrew Bailey signals softer approach. The new boss of the Financial Conduct Authority has signalled a clear break with the tough regulatory regime of his predecessor, who famously said he would shoot first and ask questions later.
  • FT. Oil rallies above $33 as output cut talk grows louder. Oil continued its rebound on Wednesday, jumping above $33 a barrel as traders looked beyond the highest US crude oil stockpiles since the Great Depression to focus on the possibility of supply cuts.