Morning Report: November 11 2016

11th November 2016 By: Ranko Berich

GBP: Rising inflation expectations have driven a mounting sell-off in bonds over the last 24 hours, and sterling appears to have been a net benefactor, strengthening against both USD and the euro. The Royal Institute of Chartered Surveyors reported that a majority of surveyors were reporting price increases in their areas, defying predictions of a decline in the wake of the EU referendum. Theresa May was reported to have had a phone call with Donald Trump to congratulate him for winning the presidential election, although of course no hard news was available of the President Elect’s likely approach to a possible free trade deal.

EUR: The euro has suffered from the global bond sell-off, as interest rate differentials between European economies and those in the UK and US widen further. The Italian constitutional referendum on December 4th May also be looming as the next potential major political risk. If Prime Minister Matteo Renzi fails to pass his proposed reforms the resulting instability, not to mention a possible resignation, could ultimately put the deeply eurosceptic Five Star movement in power. This morning’s German Consumer Price Index data showed inflation rising 0.2% in October, while Wholesale Prices rose 0.4%.

USD:  After strengthening on Wednesday the dollar did manage to extend its gains slightly versus the euro yesterday, while weakening to sterling. Equity markets performed very well on rising expectations of fiscal expansion and a business friendly tax policy, while speculation intensified on the likely direction of trade policy under a Trump administration. Weekly Unemployment Claims were once again low at just 254,000, underlining that the labour market remains exceptionally tight and any fiscal expansion runs the risk of stoking inflation and forcing a sharp monetary policy response. Today is Veterans’ Day in the United States, but the potential for political news causing moves in USD remains very high considering just how little we know about the President Elect’s plans for policy.

CAD: Having weakened yesterday the loonie remains under heavy pressure this morning. The New House Price Index showed a 0.2% increase in prices in September, but CAD was moving entirely based off fluctuations in crude oil prices, which ultimately saw the major benchmarks once again head south after a failed rally in the morning. Today is Remembrance Day in Canada, but Bank of Canada Governor Stephen Poloz will speak on a panel in Chile at 15:50 GMT.

 

UK news

REUTERS: UK construction output weakest in four years in third quarter after Brexit vote. Construction volumes fell by 1.1 percent in the third quarter as large falls in repairs were only partly offset by small rises in infrastructure and public building work, the Office for National Statistics said.

GUARDIAN: No 10 denies Nigel Farage will be given go-between role with US. Downing Street has denied reports that the interim UKIP leader, Nigel Farage, could act as a go-between to the US president-elect, Donald Trump.

MAIL: ‘Theresa is my Maggie’: President-elect Donald Trump phones May to say he wants to revive the close bond enjoyed by Margaret Thatcher and Ronald Reagan in charm offensive. Donald Trump has told Theresa May he wants to revive the close transatlantic bond enjoyed by Margaret Thatcher and Ronald Reagan.