Morning Report: 8 December 2016

8th December 2016 By: Ranko Berich

GBP Sterling remains on the defensive this morning after yesterday’s dismal Manufacturing Output figures compounded losses from Monday. Aside from the weak manufacturing data, yesterday’s biggest story came from the House of Commons, where a Labour proposed motion for the Government to clarify its objectives and timetable for Brexit negotiations was passed, with a Tory amendment affirming the Government’s timeline for Article 50 activation. During the debate Brexit Secretary David Davis confirmed that Parliament would have a vote on the terms of Britain’s exit, saying the alternative would be “inconceivable”. The consensus building in Parliament comes as the Government’s right to activate Article 50 is being tested at the Supreme Court, which could decide that an Act of Parliament is needed to begin to process of leaving the European Union. No major sterling data will be released today, so political headlines are likely to remain in focus.

EUR The euro had an uneventful day yesterday, strengthening slightly, and has held those gains this morning ahead of today’s important European Central Bank events. The ECB will release its latest decision at 12:45 GMT, followed by a press conference given by President Mario Draghi. Importantly, new ECB staff projections for growth and inflation will be available. But the key question that Draghi needs to answer today is how far the ECB intends to extend its current QE programme in 2017. Core inflation has barely improved in the eurozone since the ECB started asset purchases in 2014. But political pressure against loose monetary policy has mounted from parts of the eurozone such as Germany, and so today’s press conference will also be examined closely for indications of an intention to taper purchases in the future. Upside risk for the euro is significant if Draghi does hint at tapering: with EURUSD not far from multi-year lows, any steepening in european fixed income curves has the potential to lead to significant euro strength.

USD USD remains on the back foot this morning, having sold off against the entire basket of G10 currencies overnight. Lower fixed income yields across the US curve have taken the wind out of USD this week, and despite a mild increase yesterday USD continues to sell off. Yesterday’s Job Openings and Labour Turnover Summary report showed job openings on expectation at 5.53 million, consistent with the generally high level of demand for workers seen this year. US data will be light on the ground today, with weekly Unemployment Claims due to be released at 13:30 GMT.

CAD The loonie strengthened further yesterday as the Bank of Canada kept interest rates on hold. The statement accompanying the decision gave little away, and given that the BoC has shown it is willing to act proactively in the face of an incoming economic shock it’s difficult to judge if further rate cuts in 2017 are likely. Today at 13:30 Building Permits will be released alongside the New House Price Index and Industrial Utilization.

UK News

  • Reuters. Industrial output sinks as weak sterling no boon for factories. Falls in sterling since the Brexit vote failed to boost Britain’s manufacturers in October as industrial output, also hit by a shutdown at the country’s largest oilfield, suffered its biggest monthly drop since 2012. Industrial production sank 1.3 percent, Office for National Statistics data showed on Wednesday – a steeper decline than any economist had forecast in a Reuters poll.
  • FT. UK growth at 0.4% in quarter to November – Niesr. The British economy grew by 0.4 per cent in the three months to November, according to an early estimate from the National Institute of Economic and Social Research, in a further sign that growth could be cooling towards the end of the year. Niesr’s latest early estimates put growth at 0.4 per cent in the three months to November, the same as its estimate for the three months to October but below the 0.5 per cent officially recorded by the ONS in the third quarter.