Morning Report: 11 January 2017

11th January 2017 By: Ranko Berich

GBP After various sessions under pressure, sterling found its legs yesterday, although investors now remain cautious ahead of today’s events. Manufacturing and industrial production, construction output and goods trade balance data are released today at 9.30 GMT. Manufacturing production and goods trade balance are two of the most watched indicators since Brexit, particularly the goods trade balance given the huge trade deficit the UK faces should it leave the EU. The goods trade balance deficit contracted last month the most in 13 years, and it would be incredibly positive to see another contraction. Expectations, however, are for an increase in the deficit in November. On other matter, Mark Carney speaks before the Parliament’s Treasury Committee. After the Bank of England’s Chief Economist recognized that the central bank’s forecasts after Brexit were too pessimistic, Carney could be the target of accusations regarding the bank’s staff reputation.

EUR The euro fell slightly yesterday and remains relatively stable this morning despite equity indexes opening in the red in the single currency area. German 10-year bunds remain unchanged from yesterday showing a calmed opening in financial markets in the area. The lack of scheduled data releases today in the Eurozone could also be refraining investors to take positions ahead of today’s events in the UK and the US.

USD The dollar eked out small gains overnight as investors remain on alert for any Trump remarks that could cause further disruption, with signals showing that some hedging activity has already begun. The President-elect holds a press conference today at 16.00 GMT. The US Intelligence Service informed Donald Trump overnight that Russia has compiled potentially damaging personal and financial information on him, to what Trump answered they were “fake news” and “a political witch hunt!”. It appears that Trump’s inauguration in the White House could be surrounded by aggressive comments and accusations, which explains the increasing levels of real-money hedging observed this week. Markets could become increasingly nervous due to Trump’s aggressive stance just a few days from becoming the 45th President of the US; we recommend premature precaution on the US dollar crosses as the outlook looks, at the very least, uncertain.

CAD The Canadian dollar is mostly weaker this morning, although has been very much range bound since mid-last week due to opposing factors. Canadian data, as of late, has been considerably positive, whereas crude oil related news has started to show that oil markets could become increasingly under pressure in coming weeks. Housing starts data rebounded to 207k, and the previous release was revised upwards. However, yesterday’s news that Libya’s headline crude oil production has reached a three-year high this week, along with an increased volume of drilling in the US, is somewhat reducing the impact of OPEC’s production cut agreement, and could start to be reflected in crude oil prices. No data will be released in Canada today, but North American crude oil inventories data will remain on the radar for CAD investors.

UK News

  • FT. UK industrial production rebounds strongly in November. Britain’s industrial output rose for the first time in three months in November according to official figures, raising some hopes the sector could help boost GDP growth at the end of the year. November’s 2.1 per cent rise in industrial production – which accounts for around 15 per cent of UK GDP – was far better than the 1 per cent forecast by analysts ahead of the release.
  • FT. UK imports grow at rapid pace in November Another. wrinkle in the notion that the weaker pound will mechanically boost UK exports: it turns out that imports swelled by some £3.3bn in the month to last November, while exports grew by a more modest £700m. All told, that means the UK’s trade deficit was £4.2bn in November, much wider than economists had expected, and an expansion of £2.6bn.