Morning Report: 30 November 2016

30th November 2016 By: Ranko Berich

GBP Sterling strengthened yesterday morning against both USD and EUR, but has since pared its gains against the single currency. Politicians on both sides of the English Channel engaged in posturing yesterday, with some 80 Conservative party MPs led by Michael Tomlinson criticising the EU for refusing to discuss the status of existing migrants in the UK and EU before the commencement of official negotiations. European Council President Donald Tusk was quick to issue a public rebuke, arguing that Tomlinson’s claims had “nothing to do with reality” and emphasizing that the EU had committed to not beginning negotiations until article 50 had been activated. The Bank of England’s Financial Stability Report is this morning’s biggest news for sterling, with the report stating that the US election had “reinforced existing vulnerabilities” in financial system. UK banks were exposed to emerging markets including China, and therefore potentially vulnerable to the effects of a trade war of the sort promised by the President Elect.

EUR The euro is rallying against USD this morning, after a period of sharp weakness yesterday afternoon that quickly reversed. If the single currency can avoid a turn for the worse, today will mark the fifth straight day of increases for EURUSD, the longest winning streak for the euro in three months. This morning German Retail sales registered an impressive 2.4% increase in October, an impressive rebound after two months of declines. The French Consumer Price index was flat for the second month in a row in November, although this is still better than the expected decline. Eurozone Consumer Price Index data will be released this morning at 10:00 GMT, and European Central Bank President Mario Draghi will speak at 12:30. Draghi’s ECB colleague and frequent antagonist Jens Weidmann will speak at 16:00, making for an eventful day of euro releases.

USD The dollar is up overnight against GBP, AUD and JPY, but is down against NZD, SEK, NOK and CAD as expectations build for today’s OPEC meeting. Yesterday’s fundamental data suggested that President Trump will inherit an economy in robust shape, as Q3 Gross Domestic Product Growth was estimated at an annualised 3.2%, a substantial increase compared to the first estimate. Consumer Confidence also rose sharply in November, according to a survey conducted by the Conference Board. Today at 13:15 the ADP estimate of monthly Non-Farm Payrolls growth will be released, followed by 13:30 by Personal Spending and Income data as well as the important PCE Price Index. The Chicago Purchasing Managers Index will be released at 14:45, followed at 15:00 by Pending Home Sales, and a speech from the Fed’s Powell at 16:45.

CAD The loonie is on the offensive this morning, as the results of this week’s OPEC summit are expected to become clear over the course of today. OPEC ministers have gone into overdrive with attempts at verbal intervention, with Iraq’s oil minister this morning stating that OPEC delegates were “unanimous” in wanting a production cut. Similarly, Iran’s oil minister has said that a deal is close. Crude oil prices are rallying on the news, although the cartel has made similar noises only to see a deal collapse in the past so it is still far too early to draw conclusions about the implications for crude prices.

UK News

  • FT. RBS emerges as biggest failure in tough UK bank stress tests. State-controlled lender plans to bolster capital position by at least £2bn. Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn.
  • Reuters. Bank of England sees ‘challenging’ outlook for UK financial stability. Britain’s financial system faces a “challenging” outlook due to risks posed by leaving the European Union and other factors including the recent U.S. election, the Bank of England said on Wednesday. The danger posed by leaving the EU depended on how smoothly the process went, and whether businesses in the EU lost access to British financial services, which would hurt both Britain and the EU’s economy, the BoE said.