Morning Report: 12 January 2018

January 12, 2018

GBP Sterling took yet another pounding from the euro yesterday, but was able to regain some of its recent losses against the dollar. News flow was sparse, although the Bank of England’s Credit Conditions Survey was released without incident, as lenders continued to tighten unsecured loans. No major sterling data will be released today.

EUR Yesterday’s meeting minutes from the European Central bank set off a fresh round of euro strength, as they hinted at a potential revision in forward guidance. If such a change was made official over the coming months, it would be the first major departure from the current promise to maintain accommodative policy, which has been in place since the implementation of forward guidance in 2013. The ECB is not about to turn hawkish overnight, but a move from unconditional assurance that policy will remain loose to a more data dependent approach would nonetheless be a significant milestone on the path to normalisation.

USD The dollar is headed for its fifth weekly loss this morning, after yesterday’s Producer Price Index release put an end to any hopes of a rally. The headline as well as the core index came in at +0.1% in December while forecasters had envisioned prices would increase 0.2%. The main reason for the soft print mentioned in the report were prices for final demand services that were lower than expected. The underlying trend still points to the upside however and certain subcomponents of the report, most notably apparel, point to upward risks for the December Consumer Price Index. December CPI will be published today at 13:30 GMT, accompanied by Retail Sales.

CAD The loonie found a modicum of strength against the greenback, but like many other currencies, it lost ground to the rampant euro. Brent crude oil passed the $70 level and WTI hit at the highest level since December 2014. Last time when WTI hit these levels, USDCAD was trading well below 1.20. The National Housing Price Index was reasonably uneventful and showed nationwide average growth of 0.1% in the month of November. The Canadian data calendar is empty today, which means that markets can start preparing for the Bank of Canada’s Rate Statement coming Wednesday.

UK news

  • Guardian: Donald Trump calls off visit to London amid fears of mass protests Donald Trump has cancelled a visit to Britain next month to open the new US embassy in London amid fears of mass protests. The American president claimed on Twitter that his reason for calling off the trip was his displeasure at Barack Obama having sold the current embassy for “peanuts” and built a replacement for $1.2bn. “Bad deal,” he wrote.
  • Reuters: Merkel’s conservatives, SPD agree German coalition blueprint – sources BERLIN (Reuters) – German Chancellor Angela Merkel’s conservatives and the Social Democrats (SPD) agreed after all-night talks on Friday to a blueprint for formal coalition negotiations, party sources said, bolstering prospects for an end to months of political uncertainty. The agreement between party and parliamentary leaders should pave the way for detailed negotiations in coming weeks, lifting the uncertainty that has undermined Germany’s role in international affairs and raised questions about how long Merkel will stay in her job.
  • Reuters: May tells bankers they are a priority for Brexit amid job warnings LONDON (Reuters) – British Prime Minister Theresa May told bankers from firms such as Goldman Sachs on Thursday they were a priority for her in the Brexit talks, just as new warnings emerged of job losses in the London financial sector unless there is a trade deal.

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