Morning Report: 12 January 2017

12th January 2017 By: Ranko Berich

GBP Sterling rebounded powerfully against the US dollar yesterday, as Industrial and Manufacturing output rose by more than expected in November, and Bank of England Governor Mark Carney claimed that Brexit was no longer the single biggest risk to the economy. However, sterling was more or less flat against the euro, suggesting that yesterday’s buoyant price action on GBPUSD was more a matter of dollar weakness than a newfound bounce in sterling’s step. Industrial Production rose by 2.1% in November, the biggest increase in seven months, led by a surge in North Sea oil output. Manufacturing Production, which excludes mining and energy, also rose 1.3%, erasing last month’s decline. Testifying to Parliament’s Treasury Select Committee, Mark Carney and fellow members of the Bank of England’s Monetary Policy Committee acknowledged that the economy had performed better than expected in the immediate aftermath of the EU referendum, and that the Bank was likely to revise its forecasts for the economy upwards in the near future. Carney was quick to point out that in the Monetary Policy Committee’s view, the Bank’s own action in ensuring adequate liquidity was available in financial markets had been important in avoiding significant financial market or economic stress.

EUR The euro was another benefactor of yesterday’s USD sell-off, recovering rapidly from early losses and extending its gains overnight. No headline eurozone data was released, though Italian lawmakers continued to debate the specifics of the state-led bailout of troubled Italian bank Monte dei Paschi. A number of eurozone data releases are scheduled this morning including French CPI at 07:45 GMT, Italian Industrial Production at 09:00, and eurozone Industrial Production at 10:00. The European Central Bank’s latest meeting minutes will be released at 12:30.

USD USD sold off yesterday and in the early hours of this morning, after President Elect Donald Trump failed to offer details or further confirmation about possible fiscal easing measures during his widely anticipated press conference. However, Trump did take aim at pharmaceutical companies, sending share prices in the sector plunging, and giving us the first glimpse that global markets may already be second guessing the long USD, short fixed income “Trump trade” that has dominated since the US election. No headline US data will be released today apart from weekly Unemployment Claims and Import Prices at 13:30 GMT, although Federal Reserve policy makers Evans and Harker will speak at 13:30.

CAD The loonie strengthened against USD yesterday, taking advantage of the broad USD weakness seen in the aftermath of President Elect Trump’s speech. North American crude oil inventories once again began to rise, according to official US data, quashing for now any possibility of a sustained end to oversupply after several months of stockpile declines or tepid increases. The New House Price Index will be released today at 13:30 GMT.

UK News

  • Brexit no longer the main risk to UK’s stability, says Carney. The Bank of England no longer considered Brexit to be the largest domestic risk to the UK’s financial stability, Mark Carney told MPs on Wednesday. Instead, the bank’s governor said the main threat from Brexit was that it could “amplify” four other dangers to the economy: mounting consumer credit, a weakened commercial real estate market, the current account deficit, and the fall in the value of sterling.
  • UK banks’ share of corporate currency business dips. The share of Britain’s biggest banks in the market supplying UK companies’ daily foreign currency needs fell for a second year running in 2016 as firms made more use of new trading platforms and brokers, an industry report showed on Wednesday. The biggest non-bank provider was U.S. group Western Union, rising to 3.4 percent from 3.0 percent, followed by Monex, CMC, IG Markets, Saxo Bank and American Express. Small boutique providers doubled their share to 3.8 percent.