Morning Report: 26 January 2017

26th January 2017 By: Ranko Berich

GBP Sterling saw a decisive break higher yesterday morning, advancing rapidly against USD, and has since extended its gains. The reason for yesterday morning’s sharp move higher for sterling was not immediately apparent. Theresa May announced yesterday that the Government would publish a white paper setting out plans for Brexit, in a move to head off likely delays or opposition to an act of Parliament to activate article 50 of the Lisbon treaty, and begin the process of leaving the European union. The draft bill is expected to be published today, along with a timetable for its passage. Today is a big day for sterling data, with the release of Q4 Gross Domestic Product data scheduled for 09:30 GMT. Given the small cracks beginning to appear in Retail Sales and labour market data, it’s possible Q4 will reflect a cooling of the economy.

EUR The euro had a rather uneventful day yesterday, weakening against sterling and closing only slightly up versus USD after a volatile session. The widely watched German IFO Business Climate survey fell short of expectations, falling to 109.8 from 111.0. Companies reporting falling confidence about the six month outlook. This morning has seen the GfK Consumer Climate index improve slightly in its latest reading, ahead of Spanish Unemployment figures at 08:00 and an 08:30 GMT speech from European Central Bank policy maker and Bundesbank head Jens Weidmann. The Eurogroup of finance ministers will meet today, possibly resulting in euro relevant headlines especially relating to Greece’s (still) ongoing debt situation.

USD Even as equities show signs of strength with the Dow Jones Industrial Average breaking 20,000 for the first time, USD is struggling to regain its “Trump trade” momentum, and had a choppy session yesterday, ultimately closing slightly lower versus the euro. As announced earlier in the week on Twittter, President Trump detailed plans for the construction of a border wall, and extra screening of entrants to the US from certain countries. This afternoon will feature various data releases of mixed importance, beginning with Unemployment Claims at 13:30 GMT alongside the Goods Trade Balance and Wholesale Inventories. Markit’s Services Purchasing Managers Index will be out at 14:45, followed at 15:00 by New Home Sales and the CB Leading Index.

CAD The loonie advanced steadily over the course of yesterday’s session, extending its gains from Donald Trump’s announcement of support for the Keystone XL pipeline earlier in the week. The optimism was belied by another week of solid increases in crude oil stockpiles, which rose by 2.8m according to data from the US Energy Information Administration. Crude oil prices were resilient to the news however, meaning CAD was ultimately unaffected.

UK News

  • Donald Trump’s waterboarding comments muddle May’s trip to US – FT. British-US trade deal and the need for common front against terrorism top agenda. Mrs May, who on Friday will be the first foreign leader to meet the new US president in the White House, will focus on two key areas of agreement: the desirability of a UK-US trade deal and the need for a common front to defeat terrorism. But the prime minister is under pressure from MPs to stand up to Mr Trump on a range of issues, from his stance on Israel and Russia to his attitude towards women and the question of US food standards. Mr Trump’s comments on waterboarding of terrorist suspects — and a New York Times report that he was considering allowing the use of “black sites” to hold suspected terrorists — has further complicated Mrs May’s diplomatic mission.
  • UK factory order books strongest since 2015, but costs growing – Reuters. British manufacturers are enjoying their strongest orders in nearly two years but their costs are rising sharply following last year’s Brexit vote which pushed down the value of sterling, a survey showed on Wednesday. In the latest sign of how Britain’s economy has so far withstood the shock of June’s vote to leave the European Union, the Confederation of British Industry’s monthly industrial orders balance rose to +5 in January from zero in December.