Morning Report: 17 October 2017

17th October 2017 By: Ranko Berich

GBP Sterling has been trading sideways this week so far, as it faces a critical week ahead in terms of data. Inflation figures will be released today, and expectations are for a 3% increase year-on-year. Should expectations be met, the Bank of England’s Governor Mark Carney would have to send a letter to the Chancellor of Exchequer, explaining why inflation has overshot the central bank’s targets. This highlights the importance of today’s data. We believe that if inflation meets expectations, an interest rate hike by the BOE next month is practically confirmed. The inflation figures will be released at 09.30 BST.

EUR The euro is losing ground against most of the G10 FX this week. EURUSD will face today strong support levels if the trend continues, and GBPEUR trades near October’s highs. The results of the Austrian elections on Sunday, and the results of the German elections a few weeks ago, are bringing ghosts of the past as populist and nationalist far right parties are strengthening in the EU, something that seemed unlikely after Macron won the French elections against Le Pen back in April. The unity of the European Union is again under pressure, and the euro is suffering as a consequence. The German ZEW Economic Sentiment will be released at 10.00 BST.

USD The dollar keeps the strength seen on Monday as Fed’s Chair Yellen said on Sunday that any weakness on the inflation readings is likely to be transitory, hinting towards an interest rate hike before the year end. Yellen’s word were boosted yesterday by the result of the Empire State manufacturing index, which showed yesterday its best reading since 2010, highlighting the strength of the manufacturing sector at the moment. The optimism in the sector across the boars begins to lay down the foundation for a strong gross domestic product reading in the fourth quarter. Various minor data releases will be released today, including the industrial production index at 14.15 BST.

CAD The loonie broke its upward trend yesterday after the Bank of Canada’s Governor Stephen Poloz said yesterday that growth will moderate in Canada, whilst emphasizing the central bank is data-dependant. His most recent words contradict somehow what he said over the weekend, when stated “Canada is entering the sweet spot of the business cycle”. As a result, government yields fell, diminishing the currency’s relative appeal.

UK news

  • Reuters. May, Juncker call for faster Brexit talks. British Prime Minister Theresa May and European Commission chief Jean-Claude Juncker agreed over dinner in Brussels on Monday that the pace of negotiations over Britain’s departure from the European Union should be stepped up. Britain’s Prime Minister Theresa May is greeted by European Commission President Jean-Claude Juncker while leaving the European Commission headquarters after a meeting in Brussels, Belgium October 16, 2017. A joint statement described a “constructive and friendly” two-hour meeting, during which they “reviewed the progress made in the Article 50 negotiations so far and agreed that these efforts should accelerate over the months to come”.
  • FT. City of London warns of need for quick Brexit transition deal. ‘Transition deal is of diminishing value,’ says TheCityUK lobby group. The City of London has warned that banks and other financial groups will start moving their activities away from London unless the UK can strike a deal for a post-Brexit transition period with the EU by the end of March next year. As Theresa May met Jean Claude Juncker, the EU Commission president, in an apparent attempt to revive the stalled Brexit negotiations, TheCityUK, the main lobby group for financial services companies, warned that it was critical for the financial and professional services industries to have “urgent clarity” on transitional arrangements. “A transitional deal is of diminishing value,” said Kerstin Mathias, head of policy at the lobby group. “The longer it takes to secure, the less beneficial it is.”