Morning Report: 9 December 2016

9th December 2016 By: Ranko Berich

GBP Sterling joined other major currencies in strengthening against the euro yesterday, but weakened to the US dollar. Political stories dominated this morning’s headlines, as a leaked memo revealed Brexit Secretary David Davis expressed negative opinions about a transitional Brexit agreement and said that he would primarily consider it if requested by the EU. October trade data released by the ONS this morning showed the UK’s deficit in goods and services narrowed significantly compared to September, due to a fall in imports and rise in exports. Construction Output contracted 0.6% in October, erasing a good chunk of last month’s revised 0.9% increase.

EUR The euro weakened yesterday after the European Central Bank decided to reduce the pace of its asset purchase programme while extending its duration. ECB President Mario Draghi was quick to clarify that this was not the beginning of a tapering process, but simply reflected the diminished risk of deflation. The range of assets eligible for QE was also expanded significantly. The net result of yesterday’s announcements has been steeper government bond yield curves across the eurozone, reflected lower expectations of rates and inflation in the short term, but higher in the long term.This morning’s data included Germany’s Trade Balance, which showed a slightly smaller than expected surplus, and French Industrial Production, which contracted 0.2% in October.

USD USD performed well against the euro and sterling yesterday, as the prospect of sustained monetary policy divergence once again left the greenback as the best global prospect for higher interest rates. Weekly initial jobless claims were 258,000 the longest streak of less than 300,000 weekly jobless claims since the 1970s. Today’s data calendar is rather scarce, although Wholesale Inventories data will be released at 15:00 alongside Consumer Sentiment and Inflation Expectations data from the University of Michigan.

CAD The loonie continued its relentless march upwards against USD yesterday, and was further supported by positive housing market data. Building Permits jumped 8.7% in October, erasing September’s decline and leaving net permits up more than 14% over the last three months. The New House Price Index also exceeded expectations, jumping 0.4% in October. Canada’s Capacity Utilization rate also jumped to 81.9% in the third quarter, with oil and gas extraction the main contributor.

UK News

  • FT. David Davis rebuffed City hopes for Brexit transition deal. Brussels aghast at suggestion interim plan would be considered only to ‘be kind’ to EU. David Davis, Britain’s Brexit secretary, said he was “not really interested” in a transitional deal to cushion Britain from the effects of Brexit and that he would consider one only in order to “be kind” to the EU. Financial companies have pressed the government to agree a transition period after Britain leaves the bloc and before new trade terms are finalised, during which current arrangements remain in place. But speaking in mid-November, Mr Davis told a private meeting with the City of London Corporation that negotiating a transition, as recently championed by Mark Carney, the Bank of England governor, would not benefit the UK and could delay the Brexit process.