Morning Report: 22 December 2016

22nd December 2016 By: Ranko Berich

GBP The pound remains under pressure this morning, despite the UK economy continuing to dodge signs of post-referendum economic weakness. The latest release showed CBI private sector growth index rising to the highest level in a year. The GfK Consumer Confidence index was released earlier today, and showed a significant improvement in the climate for the Major Purchases sub-index, although the consumer’s economic perspective continues to worsen. No major data is set for release today.

EUR The euro has continued its nascent recovery, advancing against all G10 currencies with the exception of the Swedish krona, had which moved higher yesterday after two dissenters at the Riksbank’s Monetary Policy Committee voted against expanding QE in 2017. One of Italy’s most important banks, Montei dei Paschi, raised yesterday roughly €2bn from its debt swap with about half coming from retail investors. However, the oldest bank in the world failed to attract its €5bn established cornerstone, which increase the odds for a €20bn Italian state bailout package. German import prices data was released earlier today showing a 0.7% increase, higher than the forecasted 0.2%, reflecting a massive increase in the price of imported basic goods. The high and persistent demand of basic goods and products suggest that higher import prices could led to unexpected increases in the German consumer price index. No more data will be released today in the Eurozone.

USD The dollar is softer versus other G10 currencies, with trading volumes having already begin to decrease significantly ahead of the Christmas holiday. Sentiment-wise, the recent drop in crude oil prices has curbed inflation expectations, resulting in an increase in the price of treasuries, giving a boost to the dollar. Furthermore, yesterday’s existing home sales data reached a 6-year high, although the dollar’s reaction was muted. This is particularly intriguing as good macro data releases are not being followed by a higher dollar, a sign that on other occasions has signalled the exhaustion of a rally. Today’s data will help to asses this scenario with the release of the last revision of the US GDP and core durable goods orders at 13.30 BST, and core PCE Index, the Fed’s preferred inflation gauge, at 15.00.

CAD The loonie has evaporated all December gains as yesterday’s crude oil inventories in the US showed an unexpected new increase in stockpiles. As a result crude oil more than 2.5% reflecting new concerns about the success of the OPEC’s plans to reduce production and control oil supply. Various tier 1 releases in Canada could give the loonie some legs today as markets react to consumer price index and core retail sales data, released at 13.30 BST.

UK News

  • FT. Italy to bail out Monte dei Paschi di Siena bank. Monte dei Paschi di Siena is to be rescued by the Italian state using a new €20bn bailout package, as a last-gasp private sector rescue plan for the world’s oldest bank looked set to fail, forcing losses on bondholders. The government rescue, which had long been resisted in Rome, is designed to draw a line under the slow-burn crisis in Italian banking that has alarmed investors and become the main source of concern for European financial regulators.
  • Reuters. UK consumers gloomy about 2017’s looming inflation and Brexit talks – GfK. British consumers are downbeat about the economy’s prospects next year, when higher inflation is likely to erode their spending power, a major survey showed on Thursday, despite signs that growth has remained robust since June’s Brexit vote. A big jump in households’ appetite to make major purchases helped market research company GfK’s monthly consumer sentiment index inch up to -7 in December from -8 in November, but this concealed a deterioration in consumers’ outlook for 2017.