Morning Report: 23 December 2016

23rd December 2016 By: Ranko Berich

GBP Sterling continued to fall overnight, as consumers begin to worry about inflation in 2017. Expectations for economic growth are limited, and should inflation pick up quickly, consumer spending could be squeezed. However, today’s Gross Domestic Product data was slightly better than expected, which should give some legs to sterling before the Christmas period. The British current account deficit shrank again in the third quarter, well above expectations, which could also help the improvement of the British economic outlook in coming months.

EUR The euro has strengthened this week against most peers with the exception of the Swedish krona and the Japanese yen. A number of good data releases this week is helping the euro to recover last week’s losses against the dollar, and key resistance levels are being tested. This week’s inflation and consumer confidence data have increased demand of euros ahead of the Christmas holidays, and it seems that the euro could remain well bid before the year end.

USD The dollar remains in a soft tone today after treasuries rallied yesterday due to a readjustment of inflation expectations. The drop in crude oil prices and the uncertainty ahead of Trump taking over the White House has resulted in some profit-taking activity in a number of USD related trades ahead of the year end. This week’s US data has been excellent overall, highlighting yesterday’s GDP data in the US which was revised upwards above expectations. However, the dollar has failed to reach new highs which, quite often, suggest that a rally is already overbought and that a retracement is due.

CAD The loonie dropped significantly yesterday after the consumer price index contracted in November, increasing the likelihood of a rate cut in coming months. The jump in retail sales did not help the loonie yesterday, but it remains stable today. October’s monthly GDP data will be released at 13.30 BST.

UK News

  • FT. Business leaders report warmer relations with Theresa May. PM tones down attacks on corporate greed and wines and dines company chief. The news that Deloitte had agreed to withdraw from bidding for government contracts for six months after upsetting the prime minister over a leaked Brexit report seemed to epitomise Theresa May’s frosty relationship with business. The feeling appeared mutual. Not long after the Conservative party conference in the autumn, Carolyn Fairbairn, head of the CBI employers federation, suggested the prime minister was “closing the door” on Britain’s open economy.
  • FT. UK economic growth matches pre-Brexit pace at 0.6% in Q3. The UK economy grew slightly faster than first forecast in the third quarter after the Brexit vote, expanding at a 0.6 per cent pace according to a final official reading. After an initial estimate of 0.5 per cent growth in the three months to September, the Office for National Statistics nudged up quarterly growth, but year-on-year expansion was revised down to 2.2 per cent from 2.3 per cent.