Morning Report: 5 November 2015

5th November 2015 By: Ranko Berich

GBP Another strong batch of survey data helped sterling surge to fresh highs versus the euro yesterday, but the US dollar was the star performer and GBPUSD moved downwards as a result. Markit’s Services Purchasing Managers Index rose to 54.9 in October, a substantial improvement from last month and significantly higher than expected by most forecasters. PMI figures are monthly data based on survey responses so it’s too early to say if this week’s good figures indicate a broader upturn, but it’s a good sign nonetheless heading into today’s important Bank of England events. The BoE will release its latest Inflation Report, Monetary Policy Summary, Meeting Minutes, and latest rate decision at 12:00 GMT, followed at 12:45 by a press conference from Mark Carney. Caution has ruled at the Old Lady of Threadneedle Street for years now, and 2015 has been particularly marked by reluctance to consider hiking rates in the face of falling unemployment. Today’s meeting is unlikely to prove different, but as always any hints of a change in BoE thinking has the potential to see a move in sterling.

EUR The euro continued to retreat yesterday, despite some decent Purchasing Managers Index data. Markit released Services PMIs for a number of eurozone countries, showing slow but steady growth in the sector, with Spain’s data showing the highest optimism. The Producer Price Index for the eurozone, however, gave less cause for optimism. Prices earned by producers fell 0.3% month on month in September, marking four months of declines. This morning at 09:00 BST, economic forecasts from the European Commission will be released, followed at 09:10 by Retail Purchasing Managers Index data from Markit.

USD It’s shaping up to be a very significant week for USD, which continued to gain momentum yesterday as EURUSD fell. ADP’s monthly estimate of Non-Farm payrolls came in at 182,000, broadly on expectation and a slight slowdown from last month. This is a satisfactory as opposed to spectacular result, but that’s all that appears to be needed for the Federal Reserve to look very seriously at raising interest rates this December. Fed Chair Janet Yellen underlined this point in testimony to lawmakers yesterday, stating that the downside risks to the US economy had diminished. Survey data from ISM and Markit seemed to support Yellen’s optimism. Purchasing Managers Indices for the Services sector from both research agencies showed rapidly improving sentiment. Today at 13:30 GMT, weekly Initial Jobless Claims data will be released alongside Productivity and Unit Labour Cost data. No less than three members of the Federal Open Market Committee will speak today, continuing the verbal offensive started yesterday with speeches from Janet Yellen, Lael Brainard and Bill Dudley. Dudley will speak again at 13:30, followed at 14:10 by Fed Governor Stanley Fischer and at 18:30 by Dennis Lockhart of the Atlanta Fed.

CAD The loonie was another victim of USD strength yesterday, as USDCAD surged more than a percentage point over the course of the afternoon. Canada’s Trade Balance data for September showed a smaller than expected deficit, mainly due to falling imports. Crude oil prices again tumbled, after an impressive rally at on Tuesday. The falls were helped along by yet another week of rising Crude Oil inventories in the United States. Today at 15:00 BST, the Ivey Purchasing Managers Index will be released.

UK News

  • Reuters. UK house prices rise more strongly than expected in October: British house prices rose at a much faster monthly pace than expected in October, according to a survey from mortgage lender Halifax on Thursday that suggested prices will keep climbing.
  • Reuters. Brexit would see UK growth slow to 1 percent, stocks lag – Morgan Stanley: British growth would plunge to 1 percent and stocks would underperform by as much as 20 percent if voters opted to leave the European Union, U.S. investment bank Morgan Stanley said in a report on Wednesday.
  • Reuters. Bank of England’s Carney to signal if early 2016 rate rise is still on cards: The prospect of an interest rate hike by the Bank of England early next year could be revived on Thursday when Governor Mark Carney presents the British central bank’s latest economic forecasts.