Morning Report: 6 January 2017

6th January 2017 By: Ranko Berich

GBP Sterling has dropped back this morning, undoing some of the progress from yesterday afternoon’s impressive rally against USD. Despite the recent data from the UK suggesting that growth remains robust, the huge lingering uncertainty regarding Brexit means investors are reluctant to become overly positive on the pound. No data will be published today in the UK.

EUR The euro also generally gained ground yesterday, but has also dropped off this morning, after disappointing German manufacturing data. The figures showed that factory orders fell in November, partially offsetting an investment driven surge in the previous month. German retail sales dropped 1.8% in November, although they were up 3.2% on the year. The German Economy Minstry sent a note to media saying that “despite the decline in November, the results point to a very favourable development of orders in the final quarter of the year”, suggesting they expect overall demand to pick up during winter. Eurozone retail sales data will be published at 10.00 GMT.

USD The greenback has recouped some of its recent losses as currencies consolidate ahead of today’s labour market data. The all-important non-farm payrolls release will be today’s main event and becomes even more significant after the latest minutes from the Federal Open Market Committee, who set interest rates in the US. They revealed that the Federal Reserve foresees a continuous strengthening of the labour market could be the catalyst for a “less gradual” (i.e. faster) pace of increases in interest rates. Yesterday’s data showed the services sector in the US advancing solidly in December due to new orders and business activity growth. The dollar failed to rally afterwards, although markets could be awaiting until today’s data releases before making their moves. The labour market data is published at 13.30 GMT.

CAD The loonie continued its rally yesterday, favoured by the last couple of days dollar weakness. The unexpected contraction in crude oil inventories, which fell by the second most in a year, also favoured the loonie last week. However, CAD fell overnight after Canadian data yesterday showed raw materials prices falling for the first time since August. Labour market data will be released today at 13.30 GMT, although it could be somewhat shadowed by the US releases at the same time.

UK News

  • Top official at Brexit ministry opposed Tim Barrow as EU ambassador – Financial Times. The appointment of Sir Tim Barrow as Britain’s ambassador to the EU was “vigorously opposed” by the head of the Brexit ministry, who wanted to take control of negotiations with Brussels, according to several officials close to the process. Olly Robbins, the permanent secretary at the Department for Exiting the EU (Dexeu), attempted a land grab following the resignation of Sir Ivan Rogers from the Brussels post this week, the officials said.
  • UK productivity growth shows little sign of life – Financial Times. Britain’s productivity growth was unchanged in the third quarter of the year, underscoring the difficulties in lifting a key measure of prosperity in the UK economy nine years after the financial crisis. Output per hour among UK workers rose 0.4 per cent in the three months to the end of September, the same rate recorded in the quarter prior and softer than the 0.5 per cent seen at the start of the year.