Morning Report: 15 December 2017

December 15, 2017

GBP Yesterday’s Bank of England rate announcement and meeting minutes turned out to be something of a non-event for sterling. The Monetary Policy Committee kept rates unchanged in a unanimous vote, and kept its outlook for the economy, inflation, and rates, more or less unchanged. The fall in net employment reported this week did come up for discussion, but was written off as a quirk of the data as opposed to a concerning development – a judgement that is unlikely to be as easily made if the labour market cools further. Yesterday’s main data release for sterling was monthly Retail Sales, which handily beat expectations to grow 1.1% in November. This morning’s biggest news has been the formal confirmation of last week’s deal to move Brexit talks on from their first phase, which has had a muted impact on sterling.

EUR The “Draghi effect” may no longer be enough to weaken – or strengthen – the euro by several percentage points in seconds, but the euro did nonetheless weaken during yesterday’s European Central Bank press conference. The core message of the presser was that the ECB had grown more bullish on European growth, but that the eurozone was at an earlier stage in its business cycle than, for example, the United States. Inflation had yet to show signs of a sustainable acceleration, and so the ECB’s easing programme should continue unabated. Draghi batted away questions about the future of QE beyond its current end in September 2018, and the euro sold off.

USD Despite taking advantage of the euro’s weakness yesterday, USD is looking at its first weekly loss this month, after its sell off in the wake of Wednesday’s Federal Open Market Committee rate hike. US Retail Sales surged by 0.8% in November, while weekly Unemployment Claims were astonishingly low, approaching numbers not seen since the 1970s, when the labour market was far smaller. Purchasing Managers Indices for the Services and Manufacturing sectors were released by Markit, with Manufacturing outperforming and Services falling, while both remaining indicative of overall growth reported by the survey respondents. Today at 13:30 GMT the Empire State Manufacturing Index will be released, followed at 14:15 by Capacity Utilisation and Industrial production.

CAD The loonie was among the best performers against USD yesterday, amid relatively hawkish comments from Bank of Canada Governor Stephen Poloz. Poloz expressed willingness to diverge from the Federal Reserve’s policy path if necessary, saying that because of the oil price shock of 2014, the Canadian economy was a couple of years behind the US in terms of the business cycle. This week’s drought of Canadian data will finally be broken today with the release of Manufacturing Sales at 13:30 GMT.

UK news

  • Reuters: May wins applause from EU leaders for Brexit efforts. BRUSSELS (Reuters) – European leaders applauded British Prime Minister Theresa May for her work so far on Brexit, assuring her at a summit in Brussels that sufficient progress has been made to allow Britain to move on to the next stage of leaving the union.
  • Guardian: Families with stable jobs at risk of homelessness in Britain, report finds. Homelessness is now a serious risk for working families with stable jobs who cannot find somewhere affordable to live after being evicted by private-sector landlords seeking higher rents, the local government ombudsman has warned.

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