Morning Report: 15 December 2016

15th December 2016 By: Ranko Berich

GBP Yesterday was a choppy trading session that saw multiple swings of 0.5% or more on GBPUSD and GBPEUR, with the pound ultimately closing higher against the euro and lower against USD. Yesterday’s labour market data showed both unemployment and average earnings performing well, but there were subtle hints of weakness in employment data, which showed a small decline in the total employment rate, after a long expansion. The Bank of England is firmly in focus today, although it is expected to hold rates firm when the Monetary Policy Committee’s latest decision is announced today at 12:00 GMT. The accompanying Monetary Policy Summary and meeting minutes, however, may offer interesting information about the MPC’s assessment of recent economic developments.

EUR The euro is under heavy pressure this morning, especially against USD where it fell to within a dozen basis points of March 2015’s 13 year low in early morning trading. The re-emergence of Greece’s bailout as a theme this week is playing a part in euro weakness. Political back and forth between Greece, the IMF, and Greece’s eurozone creditors suggests the situation may once again become a crisis as the parties fail to agree over the achievability of Greece’s fiscal targets and the sustainability of the debt itself. Eurozone Purchasing Managers Indices for Services and Manufacturing were released this morning, showing a generally high level of reported activity growth across major eurozone economies.

USD The dollar is noticeably stronger this morning, particularly against the euro where it approached highs seen only a handful of times in the last decade. As expected, the Federal Reserve raised interest rates by 25 basis points, while signalling further rate hikes this year. However, Janet Yellen steered well clear of discussing fiscal policy in the press conference, refusing to be baited into giving ad opinion on how the Fed would respond to hypothetical fiscal easing from the incoming Trump administration. Today at 13:30 monthly Building Permits data and Housing Starts will be released.

CAD The loonie fell yesterday by the most since the Brexit referendum, hit by the Federal Reserve’s interest rate hike and hawkish tone, and also by lower crude oil prices that failed this week to gain additional momentum after OPEC’s agreement to cut production beyond initial targets. As a result, CAD pared most of December’s gains yesterday against the USD despite of a bigger-than-expected contraction in North American crude oil inventories. No data will be released today in Canada, but the Bank of Canada’s Governor, Stephen Poloz, is due to speak at 16.15 BST.

UK News

  • FT. Lloyd’s of London to establish EU base in the new year. Insurance market is among first City businesses to firm up Brexit plans. Lloyd’s of London has become one of the first major City businesses to put a timetable on plans to move a part of its operations to the EU in preparation for Brexit. The 328-year-old insurance market is in the throes of choosing a destination from a short list of five and is likely to put a proposal to its members by February next year.
  • FT. Fed sees three interest rate rises in 2017. Central bank lifts short-term rates for only second time since financial crisis. The US Federal Reserve has raised short-term interest rates for the second time in a decade and forecast a faster pace of tightening in the coming year, as it responds to a US economy that has been gathering momentum and may receive further stimulus from Republican tax cuts.
  • Reuters. Higher fuel prices hurt UK retail sales in November. Higher fuel prices took a chunk out of Britain’s rapid retail sales growth last month, official figures showed on Thursday, offering a warning about how rising inflation next year might hit consumer demand. ‘Black Friday’ discounts boosted sales of electronics, but the overall rate of growth slowed from October’s 14-year high. Retail sales volumes, including fuel, were 5.9 percent higher than a year earlier in November, down from October’s 7.2 percent, which was the strongest since 2002. This decline was in line with economists’ forecasts in a Reuters poll.