Morning Report: 7 December 2015

7th December 2015 By: Ranko Berich

GBP Although last week proved every bit as dramatic as had been expected, there will be little respite for the markets as this week is also loaded with economic events. For sterling, the so-called ‘Super Thursday’ is back this week with the Bank of England being set to release its interest rate decision, monetary policy summary and the Monetary Policy Committee (MPC) bank rate votes. Before this, on Wednesday manufacturing production data will be released, which will be important to observe the future of GDP in the UK. There are also two speeches scheduled from MPC members: Mark Carney, Governor of the Bank of England, will testify before the European Parliament Committee today at 15.00 GMT, and Martin Weale, also an MPC member, is due to speak on Friday at 15.35 GMT.

EUR The euro begins this week having fallen from the high’s posted in the immediate aftermath of last week’s European Central Bank meeting, which triggered an amazing 3% spike against USD, but nonetheless is still trading at a stronger level than at any other time over the past month. The euro’s reaction to the ECB’s meeting has damaged the credibility of its President Mario Draghi, who had built up a strong reputation for being able to seemingly weaken the euro at will with his announcements. In light of the eurozone’s continued lack of inflation, the last thing the central bank will want to see is a rally in the euro. Nonetheless, markets had obviously over estimated Draghi’s forward guidance regarding further easing, and detractors were quick to accuse Draghi of excessive ECB communication. On Friday, speaking in New York, Draghi did give a speech reaffirming that the measures applied on Thursday were the right ones to return inflation to the ECB’s target at 2%, but it had little effect on the market. This week will be calmer for the single currency, however volatility indicators are at its highest levels since 2012 which could prompt severe reactions in either side of the markets.

USD After falling significantly last week versus most of the G10 currencies, the USD begins the week reversing losses from the last few days. Friday’s Non-Farm payrolls release was positive, jobs created were above initial expectations with 211,000 jobs created, but more importantly, October’s release was revised up to 300,000 jobs from 271,000. It seems that markets now believe that the Federal Reserve has overcome the last hurdle that could reverse the Fed’s decision for its first lift-off in interest rates in 9 years, with implied probability of a hike this month now at 96%. This week starts slow as there are no major economic releases, but on Friday it will be released the producer’s price index, retail sales index.

CAD It has been a few choppy days for CAD but it seems now that is losing ground against the dollar towards strong resistance levels. This week is particularly slow in terms of Canadian economic activity, with only two releases scheduled tomorrow: housing starts and building permits at 13.15 GMT and 13.30 GMT respectively.

UK News

  • FT. Stamp duty dents sales of £1.5m-plus properties: Sales of homes costing more than £1.5m have fallen by one-fifth in the year since the government introduced reforms to the stamp duty tax on property purchases.
  • FT. Employers urged to prepare for minimum wage rise: Many employers are unprepared for next year’s sharp increase in Britain’s minimum wage, according to a government survey, prompting the business minister to urge them to act now to “avoid falling foul of the law”.
  • Reuters. UK manufacturing outlook darkens: output, orders hit six-year low: The outlook for British manufacturing next year has darkened, with output and new orders deteriorating at rates not seen since 2009, according to an industry survey on Monday that warned of slowing growth both at home and abroad.