Morning Report: 1 December 2016

1st December 2016 By: Ranko Berich

GBP Despite some choppy price action in the morning, sterling managed to strengthen over yesterday’s session, extending its gains this morning. This morning’s Nationwide House Price Index release showed year on year price growth slowing in November, although the report noted that demand conditions had strengthened due to the robust labour market. Markit’s Manufacturing Purchasing Managers Index, which tracks reported output of surveyed manufacturing businesses, fell slightly in this morning’s reading, while remaining in solid growth territory.

EUR The euro hung on for dear life against USD yesterday, as EURUSD fell throughout the day and reached a new low for the week momentarily, before rallying and ultimately avoiding the year lows seen last week. A crop of firm data releases has offered further support this morning, with Spanish, Italian, French and German Manufacturing Purchasing Managers’ Indices all pointing towards reported growth in the sector. At 10:00 GMT the eurozone’s Unemployment Rate will be released.

USD USD is stronger on a broad basis compared to yesterday’s open, but is weaker against many majors including GBP and oil producing currencies such as CAD and NOK. A raft of data was released yesterday including a surprisingly strong print for the ADP estimate of Non-Farm Payrolls creation, and a strong increase in Personal Incomes. President Elect Trump confirmed that Steven Mnuchin would be nominated for Treasury Secretary. The nomination strongly suggests Trump’s campaign talk of “draining the swamp” and avoiding conventional hires for cabinet positions was just that – Mnuchin is a former Goldman Sachs banker and has pledged to cut taxes and reduce regulations. More top tier US data will be released today, including Challenger Job Cuts at 12:30 GMT, weekly Unemployment Claims at 13:30, and Purchasing Managers Indices from Markit and ISM at 14:45 and 15:00 respectively.

CAD The loonie did strengthen over the course of yesterday’s session, but only marginally despite a surge in crude oil prices off the back of the announcement of an OPEC supply cut yesterday. After years of avoiding supply cuts the producers’ cartel finally managed to reach an agreement to reduce supply by 1.2m barrels a day, to 32.5m b/d for the first six months of 2017. The agreement is hardly a drastic cut, but is likely to help global oil supply rebalance. It’s worth noting that Russia, which is not an OPEC member, agreed to participate in cuts to its output. Just how far crude oil can rally on the decision remains to be seen, but provided continued demand growth in 2017 a recovery in prices now seems much more likely, and as such the loonie’s prospects seem rather brighter than they did before the announcement. Yesterday’s Canadian data releases were somewhat lost in the OPEC noise, but Canadian GDP rose for the fourth consecutive month in September, increasing by 0.3%.

UK News

  • Reuters.  Bank of England sees global financial risks after Trump victory. Donald Trump’s victory in the U.S. presidential election has increased the threats to the world economy from higher interest rates and less trade, the Bank of England said on Wednesday. The BoE also pointed to potential dangers from rapid Chinese credit growth or a disorganised British departure from the European Union in a half-yearly assessment of risks to Britain’s financial system.