Morning Report: 11 January 2018

January 11, 2018

GBP Sterling weakened further while rumours dominated major FX markets yesterday, as USD and the loonie moved on unsourced reports and anonymous sources. Chancellor Philip Hammond went on a charm offensive in Berlin, telling a business audience that “it takes two to tango”, and appealing for help in creating a “bespoke” trade agreement for Britain that included concessions for the UK financial sector. As if to underline the importance of the issue, recruiters Morgan McKinley said that job vacancies in London’s finance industry fell 52% in December. The Financial Times reported that German officials were less than impressed with the overture. Yesterday’s data included solid Manufacturing Output, and a narrowing in the trade deficit in the three months to November, although Construction Output fell well short of expectations.

EUR The euro took part in the yesterday’s amusing game of “chase the dollar headline”, at first advancing before retreating, and strengthened further against GBP. The single currency was mostly out of the spotlight yesterday, with a slow data calendar. Today at 10:00 GMT Industrial Production figures will be released, followed at 12:30 GMT by the latest meeting minutes from the European Central Bank.

USD Shock headlines dominated yesterday’s trading for USD, when in the late morning various news source began reporting that Chinese officials were looking at reducing use of US treasuries as a future staple of their foreign reserves. USD sold off along with US treasuries, with various benchmark bonds such as the 10 year approaching yield highs for the year or longer. Bond yields move inversely to prices. The move unwound throughout the day, helped along by official Chinese sources from the State Administration of Foreign Exchange issuing a statement saying that earlier stories may have been “fake news”. Producer Prices will be released alongside weekly Unemployment Claims today at 13:30 GMT.

CAD The loonie was put solidly on the back foot yesterday as the risk of a US exit from NAFTA came to the fore. Canadian government officials, speaking anonymously, said that the odds Donald Trump’s US administration would give notice to leave NAFTA were increasing. The next round of NAFTA talks is due to start this month on the 23rd. Today at 13:30 GMT the New House Price Index will be released.

UK news

  • Telegraph: Jeremy Hunt urged to boost NHS budget as flu crisis marks ‘watershed moment’ for health service. The NHS is at a “watershed moment” and needs tens of billions in extra cash to deliver the required levels of care, hospital bosses have warned.
  • Guardian: Brexit: UK could lose half a million jobs with no deal, says Sadiq Khan. A no-deal Brexit could cause the UK to lose half a million jobs and nearly £50bn in investment by 2030, according to an economic forecast commissioned by the mayor of London, Sadiq Khan. The report, which models five possible scenarios for leaving the EU ranging from a near-status quo situation to leaving on World Trade Organisation terms without any transition agreement, warns that the worst option could be a “lost decade” of economic slump.
  • Reuters: UK lenders plan to tighten grip on consumer loans – BoE. British lenders are planning to further tighten their grip on consumer lending which has already been slowing in recent months, a Bank of England survey showed on Thursday.

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