Morning Report: 13 January 2017

13th January 2017 By: Ranko Berich

GBP Sterling enjoyed sporadic bursts of strength against USD yesterday, but, as has frequently been the case over recent weeks, the gains were short-lived. Although fresh economic data has been light on the ground, it was announced that next Tuesday Theresa May will outline details of the UK’s negotiating aims for leaving the European Union. Until now, May has provided scant detail on the topic, with a glib remark claiming that she was after a “red, white, and blue” Brexit being the closest May has come to being drawn on the subject. As a result, next week’s speech is likely to be an important event for sterling. Elsewhere, the Bank of England’s Credit Conditions Survey will be released today at 09:30 GMT, and the Monetary Policy Committee’s Michael Saunders will speak on the Labour Market at this time.

EUR The euro remains buoyant against sterling this morning, and despite paring its gains versus the greenback, EURUSD remains well above yesterday’s open. Some fundamental data of note was released yesterday, with eurozone and Italian Industrial Production both exceeding expectations significantly. The European Central Bank’s latest meeting minutes were released, and reflected discord within the Governing Council about December’s extension on its bond buying programme. Previously the ECB had sought to emphasize broad consensus on its QE decisions, so the candour about internal divisions could be a sign QE is facing rising internal opposition. Today’s major eurozone release has been the German Wholesale Price Index, which rose 1.2% in December.

USD USD has found its legs overnight against most of its major partners, after a bruising 24 hours following Donald Trump’s press conference on Wednesday. Weekly unemployment claims were once again very low at just 247,000, demonstrating the increasing tightness of the labour market. Two speakers from the Federal Open Market Committee commented on the outlook for monetary policy, with Evans mooting the possibility of stronger fiscal policy meaning less monetary support was necessary for the economy, and Harker stating he thought three interest rate hikes would be appropriate this year. Interestingly enough, the comments had little immediate impact on USD, despite coming from two voting FOMC members. The reduced market impact from FOMC statements illustrates how the market focus for USD is increasingly fiscal policy, and statements made by the President Elect. Retail Sales data will be released today at 13:30 GMT.

CAD The loonie pared its recent gains versus USD yesterday, after reaching a fresh high versus the greenback in the morning. The only data release of note was the New House Price Index, which showed a marginally slower than expected increase in November. No data will be released today, meaning developments elsewhere, particularly crude oil markets, will holy sway over CAD.

UK News

  • Theresa May to set out more Brexit detail in speech next week – Financial Times. Theresa May is to make a long-awaited speech on Brexit next Tuesday in which she will set out more details of her negotiating aims including her plans to control migration. Mrs May’s last major speech on Brexit was at the Conservative party conference last October, in which she announced she would insist on controls on EU migration and on leaving the jurisdiction of the European Court of Justice.
  • BoE’s Carney – curbing consumer lending would be ‘big call’ Bank of England. Governor Mark Carney said it would be a “big call” for the central bank to rein in rapid growth in consumer lending, which picked up strongly last year and brought some echoes of the period before the global financial crisis. British consumer borrowing increased at the fastest annual rate for more than 11 years in November, the BoE said last week, and Carney told lawmakers that the momentum appeared to have continued into the Christmas holiday season.
  • Britain’s economy likely expanded 0.5 percent in fourth-quarter – Reuters. Britain’s economy likely expanded by 0.5 percent in the final three months of last year, slowing slightly from the third quarter, the National Institute of Economic and Social Research said on Wednesday. It estimated Britain’s economy grew 2.0 percent in 2016 compared with 2.2 percent during the previous year, in line with the long-run potential growth rate of the economy. But it warned growth over the last year has been unbalanced, led by consumer spending.