Morning Report: 9 February 2018

9th February 2018 By: Ranko Berich

GBP The Bank of England gave a clear warning it will raise rates sooner than previously expected in yesterday’s policy statement and press conference, giving sterling some broad support after losses earlier in the week. The MPC’s optimism was driven by upgraded growth expectation, a rapidly improving global outlook, and increased confidence that slack is all but gone in the economy. The 9-0 vote in favour of holding fire perhaps suggests that the Committee’s hawks were satisfied by the explicit warning in today’s Monetary Policy Summary. This is not the first time the BoE has given such a policy warning in recent years, but past warnings of rate hikes in recent years have fallen somewhat short. Most infamously, BoE Governor Mark Carney gave a speech at Mansion House in 2014 where he shocked markets by warning of the possibility of rate hikes, in a move he later admitted was simply designed to stop markets becoming “complacent”. This morning at 09:30 GMT Industrial Output figures will be released alongside the Goods Trade Balance.

EUR The latest bout of global equity turmoil and risk off sentiment has not helped the euro, and the single currency is noticeably weaker against sterling compared to the start of the week. German Bundesbank head – and potential future European Central Bank President – Jens Weidmann gave a speech on monetary policy, and remained true to form as a policy hawk, saying that in his view quantitative easing was unlikely to be necessary for much longer. This morning’s major euro release has been French Industrial Production, which expanded 0.5% in December after contracting in November. The equivalent Italian statistics will be released at 09:00 GMT.

USD US indices once again led another rout in global equities yesterday, although FX markets were uncharacteristically well behaved, and USD’s losses against traditional haven currencies such as CHF and JPY were not outsized compared to the week’s trading range. The US Government has yet again entered shutdown, although lawmakers in the Senate are reportedly on the verge of a deal to extend the budget. Weekly Unemployment Claims were once again extraordinarily low at just 221,000, a level not seen since many decades ago when the labour force was significantly smaller. Today’s sole release of note will be Wholesale Inventories at 15:00 GMT.

CAD The loonie weakened slightly against USD and EUR and more so against sterling, though it manage to restore some of the losses that were on the board around midday against GBP. An uptick in oil prices may have contributed to this. The National Housing Price Index was flat on the month in December, and below expectations. Today at 13:30 GMT we have labour market data including the Unemployment rate, which currently stands at multi-year lows.

UK news

  • Guardian: Northern Ireland will stay in single market after Brexit, EU says. UK negotiators have been warned that the EU draft withdrawal agreement will stipulate that Northern Ireland will, in effect, remain in the customs union and single market after Brexit to avoid a hard border.
  • Telegraph: EU memo of Barnier meeting raises questions over Jeremy Corbyn’s Brexit policy. Jeremy Corbyn told Michel Barnier that he was open to keeping Britain in the customs union after Brexit, a memo circulated to European nations suggests.
  • Reuters: Senate approves budget deal, too late to avert shutdown. The U.S. Senate approved a budget deal including a stopgap government funding bill early on Friday, but it was too late to prevent a federal shutdown that was already underway in an embarrassing setback for the Republican-controlled Congress.