Morning Report: 6 January 2016

6th January 2016 By: Ranko Berich

GBP It was another rough day for sterling yesterday, after strong survey data from the construction sector did little to slow the pound’s growing losing streak against USD. GBP did find slightly more strength against the euro. December’s Construction Purchasing Managers Index rose to 57.8, a solid rebound from the slight slowdown seen previously, indicating the surveyed construction businesses are once again experiencing rapid improvements in business conditions. Today at 09:30 GMT, the equivalent survey for the Services sector, by far the most important for the health of the overall economy, will be released.

EUR The euro saw another big move downwards against USD yesterday, off the back of some weaker than expected inflation data. The Consumer Price Index, which was expected by analysts to rise around 0.4% in December, instead rose only 0.2%. Equally concerning was the fact core inflation, which excludes fuel prices and is viewed as a better measure of underlying price pressure, rose only 0.9% year on year in December. Core inflation has stubbornly refused to rise far above 1% since the launch of the European Central Bank’s quantitative easing programme last March. With commodity prices still falling and the euro basically flat year on year, crunch time is fast approaching for the ECB, and the prospect of further easing is once again weighing on the euro.

USD Despite the lack of macro data yesterday, the recent waves of USD strength continued. The greenback is being helped by the fact that the euro is once again struggling, and because investors are still shying away from riskier assets. Today, however, will be a busier day in the US data calendar. Firstly, the research agency ADP releases its Non-Farm Payrolls’ estimate at 13.15 GMT, before Trade Balance data will released at 13.30, followed by Services Purchasing Managers Index from Markit and then the Insitute of Supply Management at 14.45 and 15.00 respectively. The calendar saves the best for last, with the minutes from the last Federal Open Market Committee meeting set to be released at 19.00. The meeting to which the minutes pertains was the first in seven years to have seen a hike in US interest rates, and thus the market will be carefully scrutinizing the justifications for the rate hike, and for any clues as to potential further hikes this year, meaning that we are likely to see significant volatility off the back of the release.

CAD The loonie was once again routed yesterday, as crude oil prices fell to yet another fresh low on continuing expectations of oversupply. After breaking through the 2015 peak overnight, USDCAD continued to surge this morning, with the loonie being further harmed by the release of the Raw Materials Price Index, which includes energy, showing a fall of an astonishing 4% in November, indicating a strong likelihood of deflation in producer prices. Today at 13:30 GMT, Trade Balance data will be released.

UK News

Reuters. British shop prices fall in December, more retail deflation seen: Shop prices in Britain fell in December for the 32nd consecutive month, the British Retail Consortium said on Wednesday, the latest sign that inflation is likely to remain tame.