Morning Report: 6 December 2016

6th December 2016 By: Ranko Berich

GBP Sterling continued its upwards trajectory yesterday, reaching its strongest point against USD since early October this morning. The most significant recent development for sterling has been a more conciliatory tone on Brexit from senior Government figures, including David Davis’ acknowledgement last week that the UK could continue to contribute to the EU budget. Chancellor Phillip Hammond added to the soothing noises coming from government this morning, stating on his way to an EU ministers’ meeting that it was in everybody’s interest to have a “smooth” process and talking up the importance of a deal on financial services. Eurogroup President Jeroen Dijsselbloem, on his way to the same meeting as Mr. Hammond, was markedly less optimistic, saying “the things I’ve been hearing so far are incompatible with smooth, and incompatible with orderly”, adding “if the UK wants to have full access to the internal market it will have to accept the rules and regulations that go with the internal market”.

EUR The euro is holding on to its substantial gains from yesterday this morning, as markets appear to have shrugged off the political situation in Italy entirely. Yesterday’s data included a strong print for monthly eurozone Retail Sales, which rose 1.1%. The Sentix Investor Confidence index fell to 10, nonetheless indicative of overall optimism among those surveyed. This morning German Factory Orders expanding an astounding 4.9% in October, erasing last month’s declines more than tenfold. At 10:00 GMT revised eurozone Gross Domestic Product Growth figures will be released.

USD USD is under pressure this morning, having sold off against the euro, sterling, and oil linked currencies over the last 24 hours. Yesterday’s ISM Non-Manufacturing Purchasing Managers Index suggested the service sector was expanding at its fastest pace in 13 months, with the index reading 57.2. The Federal Reserve’s composite Labour Market Index, in the meantime, edged up slightly. Today at 13:30 GMT Revised Unit Labour Cost and Nonfarm Productivity data will be released alongside the Trade Balance, followed at 15:00 by Factory Orders and IDB Economic Optimism.

CAD With the major crude oil benchmarks nestled comfortably above the $50/barrell level the loonie is having a good week, and made further progress against USD yesterday. Today at 13:30 GMT Trade Balance data will be released. Canada’s deficit is expected to shrink further from the 4.1B reported in September. At 15:00 the Ivey Purchasing Managers Index will be released.

UK News

  • FT. UK service sector growth accelerates but confidence falls – IHS Markit. The UK’s services sector remained healthy and grew at a faster rate than expected in November, according to a closely-watched survey, but concerns about inflation and political uncertainty led to the first decline in business confidence since July. IHS Markit’s purchasing managers’ index for the services sector increased to 55.2 from October’s 54.5, comfortably above the 50 level that indicates growth. Economists had expected a slight dampening of growth with the index falling to 54.
  • Reuters. Growth in British retail sales slowed in November after a bumper October as shoppers waited for big discounts around ‘Black Friday’ at the end of the month, industry figures showed on Tuesday. The British Retail Consortium said total spending rose by a year-on-year rate of 1.3 percent, slower than October’s 2.4 percent although a little stronger than the average for 2016.