Morning Report: 22 January 2018

January 22, 2018

GBP Sterling actually traded slightly lower against USD by the end of Friday’s session, with traders taking profits out of positions on GBPUSD after the pair reached a post-referendum high. The rally on Friday had occurred despite a sharp 1.5% contraction in Retail Sales in December, showing the extent to which the UK consumer was shifting purchases into November to chase sales, but was nonetheless a grim portent for 2018. This week’s calendar features labour market data from the ONS including Unemployment and the Average Earnings Index on Wednesday, and the first release of Gross Domestic Product growth in the fourth quarter, on Friday.

USD The dollar did come under pressure on Friday, but avoided a total sell-off despite US Government being forced to shut down. The shutdown is due to lawmakers failing to raise a self imposed legislative limit on the nominal value of the federal debt – a quirk of the US that is uncommon among other developed nations. Negotiations between Republicans, who control both houses of legislature and the Presidency, but not a 60 vote majority in the Senate, and Democrats, will continue this week. This week’s calendar is scattered with second tier releases, so attention will be firmly focussed on politics. The first reading of Q4 Gross Domestic Product will be released on Friday.

EUR Although the weekend’s news included a breakthrough in German coalition talks, the euro is trading slightly weaker compared to open against both USD and GBP. A possible cause is the looming European Central Bank meeting on Thursday. The ECB is likely to attempt to talk down any prospects of monetary tightening, if the recent dovish communications offensive from Governing Council Members is anything to go by. The eurogroup of finance ministers will meet today, and the week’s data calendar will begin in earnest with tomorrow’s release of ZEW Economic Sentiment figures for Germany.

CAD The loonie weakened last week, ahead of this week’s crucial NAFTA negotiations, which begin tomorrow and have been extended in length. Careful and in depth analysis of the likely outcome of negotiations is difficult due to the unpredictable nature of the US administration; so uncertainty is likely to remain a theme. This week’s data will include Wholesale Sales today at 13:30 GMT, followed by Retail Sales on Thursday and CPI on Friday.

UK news

  • Reuters: Gloom shrouds households as UK inflation fears spike LONDON (Reuters) – British households turned gloomier about their finances in January as their expectations about future inflation hit a near four-year high and they relied more on borrowing, according to a survey which underscored the strain on many consumers.
  • Bloomberg: Merkel Closes in on Fourth Term With Her Familiar Coalition Ally Chancellor Angela Merkel moved forward in her bid to form a fourth-term government after her prospective coalition partner agreed to shelve its misgivings and enter negotiations on a common policy platform for Germany. Merkel, 63, welcomed the outcome of Sunday’s vote by Social Democratic Party delegates in Bonn following what she termed an “intensive and contentious” debate. The chancellor’s Christian Democrats and their Bavarian allies will coordinate on strategy Monday, allowing talks aimed at a resumption of the so-called grand coalition to begin as soon as Tuesday.
  • Bloomberg: Shutdown Extends Into Third Day as Senate Fails to End Impasse Lawmakers failed to negotiate an end to the government shutdown Sunday despite a bipartisan effort to broker a deal, raising the political stakes as federal agencies begin closing at the start of their normal workweek.

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