Morning Report: 4 November

4th November 2016 By: Ranko Berich

GBP.  Sterling rallied powerfully yesterday, as the government lost a high court decision regarding its right to begin the process of leaving the European Union without an act of parliament. The Bank of England also backed well away from the prospect of further monetary easing in the immediate future, giving the pound further impetus. Yesterday’s high court decision was perceived as reducing the chances of an abrupt or “hard” Brexit and significant loss of single market access, due to the increased likelihood of additional parliamentary scrutiny of the Government’s plans. The Government has already announced it will be appealing the decision, with a Supreme Court hearing booked for early December, so the story is far from over and further drama seems highly likely. Mark Carney’s Press Conference following yesterday’s BoE Inflation Report featured some lively questioning, with the Governor batting away the usual accusations of political interference and inaccurate forecasting, while also making the rather awkward acknowledgement that the UK economy has performed better than expected in the immediate aftermath of the EU referendum. Forecasts for 2017 growth were revised upwards sharply, Today at 14:45 GMT BoE member Kristin Forbes will speak.

EUR.  The euro fell back slightly against the dollar over the course of yesterday morning, but then rallied in the afternoon to close slightly up. Eurozone unemployment was flat at 10.00%, consistent with the trend of extremely slow improvement seen over the last couple of years. Services sector Purchasing Managers Indices released this morning were generally slightly below expectations, although remained in expansionary territory. Today at 10:00 GMT the eurozone Producer Price Index will be released.

USD.  After a momentary rally against the euro yesterday morning, the greenback quickly found itself on the back foot again. Yesterday’s data included slightly higher than expected weekly Unemployment Claims, and worse than expected Unit Labour Cost growth for the third quarter. Services Purchasing Managers Indices from Markit and ISM both showed a relatively high level of reported activity growth among the surveyed businesses, and Factory Orders grew an impressive 0.3% month on month in August. Today at 12:30 GMT the monthly Non-Farm Payrolls report will be released, with most analysts’ estimates being for only modest growth in payrolls after last month’s rather low figure of 156,000. Average Hourly Earnings are arguably the more important figure to watch, as they reflect rising cost pressure in the economy and are likely to support the Federal Reserve’s intentions to raise interest rates in the near future.

CAD.  After managing to stave off further weakness, the loonie is trading down this morning against USD, amid the latest declines in crude oil prices. Monthly labour market data will be released today at 12:30 GMT, alongside Canada’s Trade Balance, perhaps providing an opportunity for economic data to influence the loonie trading after several days of sideways action on USDCAD.


UK news

Reuters.  UK court says Brexit needs parliament’s approval, complicates government plans. A British court ruled on Thursday that the government needs parliamentary approval to start the process of leaving the European Union, potentially delaying Prime Minister Theresa May’s Brexit plans. The government said it would appeal against the High Court ruling and Britain’s Supreme Court is expected to consider the case early next month.

FT.  Brexit defeat leaves May with EU divorce dilemma. MPs will seek to have their say on the government’s negotiating strategy. Theresa May’s defeat in the courts on Article 50 leaves the prime minister facing serious uncertainty over her EU exit strategy, with the prospect of months of delays and a concerted move by MPs to push her towards a “soft Brexit”.

FT.  Brexit ruling and BoE decision send pound surging. Gilts under pressure as Bank of England signals limited tolerance for inflation. The pound soared to a four-week high on Thursday after the High Court ruled the government must seek parliamentary approval for triggering Article 50 and the Bank of England said the post-referendum economy was “notably stronger” than it expected.