Morning Report: 8 January 2016

8th January 2016 By: Ranko Berich

GBP Sterling plunged to lows not seen since 2010 against USD around noon yesterday, surpassing the lows seen in early 2015. Since then, the pound has rebounded noticeably, although it is too early to rule out another turn downwards. George Osborne used his speech in Cardiff on the economy to warn of increased downside risks to the economy in 2016, a move that Labour quickly described as “getting his excuses in early”. China, the eurozone, and falling commodity prices all got a mention, while the Chancellor maintained that further fiscal austerity was the correct policy. Osborne also warned about a potential rate rise for mortgage lenders at some stage in the near future. Today at 09:30 GMT Trade Balance data will be released.

EUR The euro continued to benefit from safe haven flows yesterday, as equity markets and commodities suffered from a wave of fear induced sell pressure. After Chinese authorities announced the cancellation of the “circuit breaker” mechanism that had halted trading earlier that day, some calm returned to markets, but the euro’s momentum continued. European Unemployment fell to 10.5%, the lowest since 2012. However, if the UK and US economies are anything to go by, this is no reason to believe upwards price pressure due to a tight labour market is about to materialise any time soon. This morning, monthly German and French Industrial Production data were shown to have contracted in November.

USD Risk appetite has recovered slightly this morning after Chinese equity markets finally found their legs overnight, and as a result the currencies that suffered this week as a result of the risk-off trade have recovered somewhat against USD overnight, including the Aussie, Kiwi and Canadian dollars. Safe havens such as the euro, Swiss franc and yen have generally shed some of their gains vs USD overnight. Today is a new day however, and attention will be focussed firmly on this afternoon’s Non-Farm Payrolls report, which remains the premier measure of the US labour market and the most important event for USD. The Federal Reserve has been very clear that further rate hikes are not guaranteed this year and are instead contingent upon further favourable developments in the economy. Research company ADP estimated that December had been a red-hot month for job creation, and if the official figures live up to the high expectations that have been set then another bout of USD strength could be triggered. The official Non-Farm Payrolls report will be released at 13:30 GMT.

CAD The loonie reached new multi-year lows versus USD as crude oil prices fell sharply again in the early hours of yesterday’s trading session. Commodity markets recovered in the afternoon after China retired the halt in stock markets which prompted an impressive recovery especially in crude oil markets and CAD also eased all daily losses. The unemployment rate and building permits will be released today in Canada at 13.30 GMT, although labour market data from the US, including the all-important Non-Farm Payrolls, could have a significant impact in the Canadian dollar.
UK news

  • FT. Weak wage growth likely to persist in 2016: Britain’s recruitment industry has warned wage growth is likely to remain subdued this year, with slower increases in jobs for permanent staff and temps.
  • Daily Mail. Top end of the property market is hit by ‘paralysis’ following introduction of higher stamp duty a year ago :The sale of expensive London homes has collapsed by two thirds following the overhaul of stamp duty, new figures have revealed.
  • Reuters. Cheaper oil helps narrow UK trade gap in November: Britain’s trade deficit with the rest of the world narrowed in November as cheaper oil prices reduced the cost of imports, helping to offset a record goods trade deficit with other European Union countries.