Morning Report: 10 January 2017

10th January 2017 By: Ranko Berich

News in brief

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  • GBP.  The onslaught against the pound continues today in sterling crosses. Theresa May’s apparent openness towards a so-called ‘hard Brexit’ has completely reversed the boost the pound had derived from several excellent macroeconmic indicators that have been released since mid-December. This week’s economic calendar is quite light, and today’s only release was the British Retail Consortium Retail Sales Monitor, which increased 1% in December, helped by the Christmas shopping period. No more data will be released today, but markets will focus on tomorrow’smanufacturing and industrial production and the goods trade balance, some of the most important indicators since Brexit given the size of the UK’s current account deficit.
  • EUR.  The euro is mostly stronger this morning against the G10 FX basket, as optimism improves following several very positive economic indicators. Yesterday’s data included better than expected investor confidence, German trade balance and investors confidence, along with today’s impressive French industrial production, which rose 2.2% in December (highest since June 2013). Such continuous stream of positive data comes at a time where rising populism across Europe is losing momentum, and investors are becoming more relaxed about the increasing importance of populist parties. An example of this came this weekend, when the leader of Italy’s populist 5 Star Movement’s, Beppe Grillo, called for an internal vote to break away from the Eurosceptic bloc of MEP’s, Europe of Freedom and Direct Democracy (EFDD), which is co-chaired by UKIP’s former leader, Nigel Farage. Instead, Grillo attempted to get closer to the EU’s Chief Brexit negotiator, Guy Verhofstadt, and his party ALDE, a pro-European federalist party. Although the plan collapsed when it was rejected last night, the distinct change in tack from Grillo was well-received by markets.
  • USD.  The dollar is largely weaker this morning, with US treasuries yields falling. No data was released yesterday in the US, and today’s calendar only includes the Job Openings and Labor Turnover Summary and the final wholesale inventories. The major release this week will be Friday’sretail sales, which will be scrutinized due to its importance when forecasting the US economic growth in the 4th quarter. Retail sales account for nearly 70% of total US economic output, so the figure is closely watched.
  • CAD.  The Canadian dollar holds its recent gains despite of a drop in crude oil prices yesterday. It appears that the last rally of crude oil prices is beginning to falter, even after most of the OPEC countries appear to be on scheduled regarding their production cut targets. The lack of further oil prices strength could begin to weigh on petro-currencies, particularly now that attention is focusing on the increase in the number of oil drills in the US, which reached last week the highest level since January 2016.

UK news

  • Pound traders fret over Theresa May’s Brexit vagueness – Financial Times The latest slide in the value of the pound was not because markets fear a “hard Brexit” but because of their exasperation at a lack of clarity from Theresa May, foreign exchange traders said. Her comments were the latest indication that the UK would leave the single market after Brexit, but several traders and analysts said they were unsurprised — Mrs May’s speech at the Conservative party conference last October set out negotiating red lines that rendered continued membership politically impossible.
  • Christmas sales boost UK retailers, but non-food sales sluggish – Reuters British retail sales picked up speed in December, an industry survey showed, but sales of bigger ticket items were sluggish, a possible early sign that consumers are bracing for a Brexit hit to their spending power. A separate survey showed a slight slowdown in the number of permanent workers hired via recruitment agencies last month and pay rising at the slowest pace in five months. Economists are watching for any signs of a flagging in the spending by consumers which has helped Britain’s economy to withstand the shock of the vote in June to leave the European Union.