Morning Report: 28 November

28th November 2016 By: Ranko Berich

News in brief

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GBP.  Sterling is under pressure this morning, after extending its gains from last week on Friday. The second release of Gross Domestic Product growth in the third quarter showed growth of 0.5%, consistent with earlier estimates. However, Business Investment exceeded expectations to rise an estimated 0.9% in the third quarter. This is significant because a fall in investment driven by political uncertainty was one of the main risks in the post-referendum period highlighted by economists. Yesterday’s data therefore supports the idea that the economy has so far taken Brexit in its stride. CBI Realised Sales data also exceeded expectations, showing the surveyed firms were reporting stronger than expected sales growth in the 12 months to November. No data will be released today, so the week’s calendar will begin with tomorrow’s Money Supply data from the Bank of England. The BoE’s Financial Policy Committee’s latest Stability Report will be released on Wednesday, followed by Purchasing Managers’ Index survey data from the Manufacturing and Construction sectors on Thursday and Friday.

EUR.  The euro continues to rally against USD this morning, having reached its weakest point against the greenback since early 2015 last Thursday before finding its legs. Italy’s constitutional referendum is scheduled for this Sunday, and is likely to remain a major driver for the euro this week. The prospect of political instability due to the government failing to pass its proposed reforms looms over the single currency. Today at 11:00 GMT the German Bundesbank will release its monthly Report, and at 16:20 European Central Bank President Mario Draghi will speak. Draghi commented last week that the eurozone economy was growing slowly, but in 2016 had finally surpassed pre-crisis levels. Later in the week Manufacturing and Services Purchasing Managers Index data will be out on Wednesday, and the German IFO Business Climate Survey will be released on Thursday.

USD.  The US Dollar is retracting from multi year highs this morning as the US treasuries sell-off takes a break, after a variety of US Sovereign assets hit two year lows last week. The US goods trade balance deficit widened last Friday to $62bn, compared to an expected $59bn, suggesting that the recent greenback’s strength is weighing on the US external sector. Future currency weakness is one possible way this deficit could be corrected in the future. Import tariffs, as suggested by President Trump on the campaign trail, are another. The US economic calendar is packed this week, kicking off tomorrow with the second estimate of GDP in the third quarter, followed by inflation data on Wednesday, manufacturing PMIs on Thursday and Non-Farm payrolls on Friday.

CAD.  The loonie is falling against most G10 currencies this morning, with the exception of both GBP and USD. Hopes for an OPEC deal are fading after Saudi Arabia’s oil minister al-Falih suggested over the weekend that the cartel does not need to trim output. The remaining OPEC countries may pursue a production cut before the meeting on November 30th, but without Saudi Arabia’s commitment, it seems unlikely that oil prices will recover significantly.