Morning Report: 19 January 2017

19th January 2017 By: Ranko Berich

GBP Sterling pared its gains from Tuesday yesterday, despite some reasonably firm labour market data, but is trading slightly up this morning. The Unemployment Rate was steady at 4.8%, and over the three months ended November wage growth averaged 2.8%, a slight improvement on the last reading. But there were signs of slowing in the details of the report which showed that the total number of people in work had actually fallen slightly, and that in the month of December alone, wage growth had slowed. The next several months of developments in the labour market will prove crucial, as businesses process the new information recently revealed by the Government about the nature of Brexit.

EUR The euro’s upwards trend against USD took a significant hit yesterday, ahead of today’s important European Central Bank rate announcement and press conference. Given the ECB’s recent extension of asset purchases, no change in monetary policy is likely today. But after December’s meeting minutes revealed opposition to the extension, and recent firm inflation data in Germany, President Mario Draghi is likely to face some firm questions from media about the likelihood of future extensions. The ECB will announce its latest rate decision at 12:45 GMT, with the press conference following at 13:30.

USD The greenback stabilised yesterday after a rough start to the week, but has found itself on the back foot again this morning. Consumer Price Index inflation rose above 2% for the first time in more than two years in December, supporting comments made by several Federal Reserve decision makers in recent days. Fed Chair Janet Yellen echoed comments from colleagues yesterday in a speech, saying that the economy is “close” to the central bank’s objectives and that rates would go up “a few times a year”. Yellen and the FOMC’s plans to raise interest rates may put the Fed at odds with incoming president Donald Trump, who spoke out against the strong USD in a Wall Street Journal interview earlier this week. Today at 13:30 GMT Building Permits, Housing Starts and Unemployment Claims will be released alongside the Philly Fed Manufacturing Index

CAD After the Bank of Canada kept rates on hold yesterday but warned that rate cuts remained on the table, the loonie had a major reversal after several days of strength and is currently trading some 1.8% weaker than Tuesday’s lows against USD. Governor Stephen Poloz’s comments may well have been a classic example of jawboning, given that he added the caveat that rate cuts were still possible if the economy deteriorated. The Bank’s latest Monetary Policy Report also warned about the consequences of any protectionist trade policies of the sort discussed by incoming US President Donald Trump.

UK News

  • Reuters. May says Britain faces momentous change as it leaves EU. DAVOS, Switzerland Britain is facing a period of momentous change following its decision to leave the European Union and will need to forge a new role in the world, Prime Minister Theresa May told the World Economic Forum in Davos on Thursday.
  • Reuters. Britain warns EU it will ‘find ways’ to compete if no trade deal. Finance minister Philip Hammond warned the European Union on Thursday that Britain would be forced to find different ways to remain competitive if there was no “comprehensive trading relationship” after Brexit.
  • Guardian. Shadow cabinet MPs ‘considering’ voting against article 50. Several members of Jeremy Corbyn’s shadow cabinet are considering refusing to vote for a bill triggering article 50, amid widespread concern among Labour MPs about the party’s response to Brexit.