Morning Report: 2 November 2017

November 2, 2017

GBP Sterling volatility was low yesterday as markets braced for today’s all important Bank of England events. The Markit Manufacturing Purchasing Managers’ Index rose slightly in October, as the surveyed manufacturers reported higher activity and robust order growth. This morning, at 9:30am GMT we see the release of Construction data, however the markets main focus will be the Bank of England’s latest Inflation Report at 12:30pm GMT, alongside a rate decision that is likely to be the first hike in more than a decade. Expectations for the move are overwhelming after months of increasingly explicit messaging from Monetary Policy Committee members, and so the sterling reaction is likely to be driven by how hawkish or dovish the messaging accompanying the hike will be. MPC members including Governor Mark Carney will give a press conference at 13:30.

EUR The euro traded lower against USD yesterday, but recovered its losses with some sharp appreciation versus the greenback overnight. After a lull yesterday the euro data calendar gets more eventful today. Eurozone Manufacturing PMIs have already been released this morning, with Italian, Spanish and German figures all positive, but French manufacturing below market expectations. The overall reading for the Eurozone was 58.5, with any number above 50.0 representing expansion.

USD USD sold off overnight as firm reports emerged that US President Donald Trump would choose Jerome Powell as the next Federal Reserve Chair, and the Fed itself held rates steady as universally expected at last night’s meeting. Powell is a conventional choice, and already a member of the Fed’s Board of Governors that is perceived as in favour of lighter regulation. Last night’s dollar weakness may have been triggered by an unwinding of expectations that a hawkish or unconventional pick may disrupt the Fed’s current, extremely cautious approach to rate hikes. Political wrangling continued in the legislature over a Republican Party plan for tax cuts, that will supposedly be released today and may be relevant for USD if it is viewed as inflationary. Aside from the potential announcement of tax reform plans. Weekly Unemployment Claims data will be released today at 12:30 GMT, alongside Nonfarm Productivity and Labour Costs data. Fortuitously, Jerome Powell himself will speak at 12:30.

CAD The loonie recovered part of Monday’s losses overnight as the dollar fell following Trump’s Fed Chair decision, but CAD is falling now as crude oil prices weaken and USD strengthens across the board. No data will be released today from Canada.

UK news

  • FT: Trump set to name Powell as Fed chair nominee. President expected to make announcement on Thursday confirming choice of central bank head. Jay Powell is expected to be the president’s nominee to serve as the next chair of the Federal Reserve, according to two White House officials, as Donald Trump moves to make his mark on the world’s most powerful central bank. The White House is due to make the announcement on Thursday, ending months of speculation ahead of the end of Janet Yellen’s first term as chair in February. The post of Fed chair is subject to Senate confirmation. Mr Powell has been a serving Fed governor since 2012. A centrist on monetary policy, he is known as a pragmatic and down-to-earth official with private sector and government experience. A trained lawyer and former partner at private equity firm Carlyle, he also served in the Treasury under former president George H.W. Bush in the 1990s.
  • Reuters: Bank of England set to raise rates for first time since 2007. The Bank of England looks set to raise interest rates for the first time in more than 10 years on Thursday, despite economic growth appearing weaker than before any other increase in borrowing costs in the past 20 years. Almost all economists polled by Reuters expect the BoE to raise base rates to the 0.5 percent they stood at from March 2009 until August last year, when they were halved to 0.25 percent after Britons voted to leave the European Union. Britain’s annual growth is running at its weakest in four years, but with inflation hitting a five-year high of 3.0 percent in September and unemployment at a 42-year low, the central bank is worried the economy could overheat. “The time for beginning to edge up interest rates oh-so-cautiously from a quarter percent to a half percent is pretty nigh,” former BoE deputy governor Rachel Lomax said.

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