Morning Report: 17 November 2017

November 17, 2017

GBP Sterling was relatively stable yesterday, picking up a handful of basis points against USD and EUR, with its momentum continuing this morning. October’s retail sales report showed that year on year growth in retail sales plummeted to its lowest level since 2013, but this was partly influenced by a particularly strong burst of growth in sales at the end of last year. Monthly sales in October were actually fairly solid, rising 0.3%, better than expected. Ultimately the takeaway from October’s report is that the UK consumer remains under pressure from falling real wages, and can’t be relied on to deliver the kind of spending that propped the economy – and sterling – up in recent quarters. On a short term basis the modest growth we’ve seen in recent months is indeed somewhat encouraging, but with real wages likely to shrink further it’s difficult to avoid the conclusion that the outlook for consumer spending in the UK remains bleak.

EUR Euro news flow was subdued yesterday, and the single currency retreated slightly against GBP, while drifting lower against USD. Final eurozone Consumer Price Index data for October showed headline inflation at 1.4% year on year, broadly consistent with the trend in recent months. This morning’s data has included the eurozone’s Current Account, which showed XXX. Elsewhere, Angela Merkel is expected to press ahead with coalition talks today, after reportedly fruitless all night negotiations with potential partners.

USD The dollar has come under pressure overnight, notably against the yen where it has dropped to its lowest level since last month. Further progress on tax reforms has been made with the House of Representatives finally voting through a tax cut bill, although the fiscal implications of the package may increase US government debt by $6.9bn, according to one economic model. More optimistic assessments of the bill place the net deficit effect at around $1tn. Yesterday’s data releases included a higher than expected amount of weekly Initial Jobless Claims, a miss for monthly Import Prices, and a worse than expected reading for the survey based Philly Fed Manufacturing Index. Today at 13:30 BST monthly Building Permits and Housing Starts will be released.

CAD After Wednesday’s losses the loonie rallied yesterday, and did not equal the highs on USDCAD seen earlier in the week. US firm Automatic Data Processing released its first ever monthly estimate of job creation in Canada, reckoning net employment had fallen by 5700, well ahead of next month’s official jobs figures. Today at 13:30 GMT consumer price data will be released, a critical development given the importance of incoming inflation data to the Bank of Canada.

UK news

  • FT: Draghi on QE: Size isn’t everything. Central bankers warn of limits to guidance. Never mind the size – it’s the fact that we are doing it that matters. That’s in essence the message from Mario Draghi, president of the European Central Bank, referring to the bank’s bond-buying quantitative easing programme. Speaking in Frankfurt, Mr Draghi said the bank was increasingly getting to the point where the most important signal to markets was that it would continue to buy bonds. The amount of the purchases was of secondary consequence, Mario Draghi highlighted on Friday. The ECB has recently decided to wean markets off its bond buying, cutting the amount of bonds it plans to buy in the €2.6tn programme to €30bn a month next year, from €60bn.
  • Reuters: Under pressure, May tries to reassure EU on money.  Britain will honour its commitments to the European Union, Prime Minister Theresa May said again on Friday, trying to reassure increasingly frustrated leaders who want London to spell out how much it will pay on Brexit. May will hold meetings with leaders on the sidelines of an EU summit on labour and social reform in Gothenburg, Sweden, to try to break deadlock over the so-called divorce settlement that has all but frozen Britain’s talks to leave the bloc. With 16 months before Brexit day, Britain needs to open the way to start discussions on the future trading relationship with the bloc to offer businesses, which are threatening to leave the country, some certainty in taking any investment decisions.

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