Morning Report: 3 November

3rd November 2016 By: Ranko Berich

GBP.  Sterling is trading up this morning against both USD and EUR, as markets digest this morning’s unexpected High Court decision to block the government’s ability to activate the process of leaving the European Union without an act of parliament. The decision is a major blow to the government’s plans to activate article 50, and is expected to be subject to an appeal at the Supreme Court. The prospects for further complications are significant, as a parliamentary debate on the issue is likely to be extremely contentious. The day’s events are far from over however: at 12:00 GMT the Bank of England will announce its latest rate decision, and release the latest Quarterly Inflation Report. A rate cut is possible, but seems unlikely given the economy’s recent outperformance, and it’s possible that the BoE may be forced to acknowledge that further easing has become less likely. BoE Governor Carney will lead a press conference at 12:30.

EUR.  The euro has taken a small step back against sterling this morning, after a strong start to the week that saw it rally against the US dollar and maintain momentum against the pound. With momentous events occurring in the US and UK the euro is somewhat out of the spotlight at the moment, although this morning Spanish Unemployment data showed a smaller than expected increase in joblessness. Eurozone Unemployment data will be released at 10:00 GMT.

USD.  USD remains under pressure this morning, despite the Federal Reserve sending a fairly clear signal last night that it would probably be raising interest rates in December. Although the rate-setting Federal Open Market Committee last night declined to raise rates, the statement that accompanied the decision made it clear that momentum was building within the Committee for a policy change in the near future. At this stage, all US data will be judged in terms of the Fed’s December meeting, with labour market and inflation data in particular focus. Yesterday’s ADP Non-Farm Employment Change, an estimate of official job creation, fell short of expectations at just 147,000, although as multiple US policymakers have noted the economy does not require a rapid rate of job creation to use up the remaining labour market slack. Today at 12:30 GMT weekly Unemployment Claims will be released alongside Unit Labour Costs and Productivity data, followed at 13:45 and 14:00 by Services Purchasing Managers Index data from Markit and ISM. Factory Orders data will accompany the ISM release at 14:00.

CAD.  A whopping increase in crude oil inventories created a spike in CAD volatility yesterday that saw the loonie weaken rapidly, only to rally over the following hours. EIA Inventory data showed that crude oil stockpiles rose a whopping 14.4 million barrels over the past week, strongly suggesting that the glut in crude oil supply in North America is a long way from clearing.


UK news

FT.  High Court rules UK government needs parliamentary vote on Article 50. The government does not have the power to trigger Article 50 without a parliamentary vote, the High Court has ruled in a landmark decision. The decision by the High Court means that the government cannot use its prerogative powers to leave the EU by triggering Article 50. Instead, the declaration by the High Court means that MPs must vote beforehand.

Reuters.  British government loses court case on how to trigger Brexit. England’s High Court ruled on Thursday that the British government requires parliamentary approval to trigger the process of exiting the European Union, a major upset for Prime Minister Theresa May’s plans for Brexit. Sterling rose on the news, with many investors taking the view that lawmakers would temper the government’s policies and make an economically disruptive “hard Brexit” less likely.