Morning Report: 21 December 2016

21st December 2016 By: Ranko Berich

GBP Sterling continued to weaken to USD yesterday, and remains under pressure this morning. Yesterday’s only fundamental data release of note was the Confederation of British Industry’s Realised Sales Index, which rose sharply, indicating the surveyed stores reported strong increases in sales year on year. Theresa May strongly suggested that her government would be seeking to negotiate a transitional Brexit deal that would see some privileges and obligations continue for a period after the UK’s formal departure from the EU. The current two year timetable for negotiating the future of Britain’s relationship with the EU is viewed by both British and EU officials as highly improbable, and a transitional arrangement could buy time for the UK economy to adjust to life outside the trading bloc.

EUR The euro fell to fresh, calamitous lows against USD yesterday but did manage to eke out some modest gains versus sterling. This morning’s data has included soft French Producer Prices, which contracted 0.2% year on year despite a bump in the November index compared to October. The weakness in French PPI contrasts with the strong German figure yesterday, which rose into positive year on year growth. Troubled Italian Bank Monte dei Pachi shares were suspended from trading yet again this morning, as the world’s oldest bank continues to struggle to find liquidity and a solution for its current crisis. At 15:00 GMT the latest eurozone Consumer Confidence figures will be released.

USD Dollar strength has yet again been the dominant theme of fx trading so far this week, and USD made further progress against the already battered euro yesterday, only paring its gains slightly this morning. No fundamental data was released yesterday, meaning the week’s calendar will begin with the release of Existing Home Sales today at 15:00 GMT, which will be followed by Crude Oil Inventories at 15:30.

CAD The loonie jumped yesterday afternoon after reports showed crude oil inventories falling 4,15 million last week. A somewhat softer dollar also helped to give CAD some momentum. Yesterday’s wholesale sales index showed the largest increase since July. No data will be released today and crude oil markets developments will remain the catalyst for CAD.

UK News

  • FT. Business faces ‘confusion’ over post-Brexit regulation, CBI warns. UK may have to maintain or copy work of 34 EU watchdogs. Businesses in Britain face “confusion and uncertainty” over the post-Brexit regulatory regime with the UK having to maintain or copy the work of no fewer than 34 European regulators, the CBI employers’ group has warned.
  • FT. Theresa May says she wants to negotiate a transitional Brexit deal. Prime minister tells MPs that UK and EU economies need time to adjust. Theresa May has said she wants an “implementation phase” to help smooth Britain’s exit from the EU after 2019, giving business time to adapt to a new trading and regulatory regime. It was the closest the prime minister has come to publicly conceding that business and governments on both sides of the Channel would need a transitional deal to avoid the Brexit “cliff-edge” feared by companies and the City of London.