Morning Report: 31 October 2016

31st October 2016 By: Ranko Berich

GBP The big question for sterling this week is if last week’s lows on GBPUSD will act as a short term bottom for the pound, given that we have seen no new adverse political news and economic data remains positive. Details emerged of the nature of the assurances offered to carmaker Nissan by the over the weekend, suggesting that the government would adopt an “industry by industry” approach to tariff free trade. Given the deep supply chain links between carmakers around europe, the industry seems a natural target for tariff free trade, so May’s move makes sense. How receptive European leaders will be to this approach remains unclear. This morning Money Supply data released by the Bank of England showed M4 money supply contracted 0.4% in September, as deposits and lending to financial and non-financial businesses contracted sharply. Survey data will be released by Markit for the Manufacturing, Construction and Services Industries on Tuesday, Wednesday and Thursday respectively this week. The Bank of England’s latest Inflation Report will be presented in a press conference on Thursday, alongside the latest rate decision.

EUR The euro’s rallied last week, stemming its losses after several weeks of consecutive losses to the US dollar, and managing to advance sharply on Friday. Friday’s data was mixed, with the French Consumer Price Index falling well short of expectations, but the equivalent German CPI rising to a two year high. Political risk in europe has also diminished over the last week, with the signing of the EU Canada trade deal, and Mariano Rajoy’s election for a second term as Prime Minister of Spain, ending months of deadlock. This morning disappointing German Retail Sales data has already been released, alongside european CPI which and Gross Domestic Product growth, which were both consistent with a gradually improving European economy.

USD After a relatively uneventful week, USD is heading into an event packed two weeks that will see a Federal Reserve meeting and jobs report this week followed up with next week’s presidential election. The latest poll data shows Hillary Clinton’s lead over Donald Trump narrowing, after the latest email-related headlines over the weekend, suggesting that it’s not safe to assume an outcome for next week’s election. Today at 13:30 BST Personal Spending and Income data will be released, accompanied by the PCE Price Index, the Federal Reserve’s preferred inflation measure. The latest Fed rate decision will be announced on Wednesday, and the October Jobs report will be released on Friday, making for an eventful week even before political considerations are taken into account.

CAD Further losses in crude oil prices last week had a predictable effect on the loonie, which once again weakened on Friday, falling to yet another multi month low against USD. This week’s calendar is reasonably busy, beginning with price indices for Raw Materials and Industrial Products today at 13:30 GMT, followed on Tuesday by monthly Gross Domestic Product data and on Friday by Unemployment.

UK News

  • Reuters. Britain wants tariff-free trade for motor industry after Brexit. Britain told Nissan it would aim for tariff-free trade with Europe for the motor industry after Brexit, persuading the Japanese company to invest in the country’s biggest car plant, a cabinet minister said on Sunday.
  • FT. Mark Carney stands ready to serve 8-year term at Bank of England. Governor sees role helping economy through Brexit in move that will defy Tory critics. The governor is expected to confer with Prime Minister Theresa May and Chancellor Philip Hammond before making a final “personal” decision, potentially ahead of the publication of the BoE’s inflation report on Thursday.
  • Guardian. Sadiq Khan warns hard Brexit will cost millions of jobs across UK. London mayor tells City of London banquet that leaving single market is economic self-sabotage as policy chief admits job losses inevitable.