Morning Report: 26 October 2017

October 26, 2017

GBP Sterling had a rampant day yesterday after Gross Domestic Product numbers came in above expectation, more or less setting the Bank of England November rate hike in stone. The services sector lead the economic growth, helped especially by strong outputs in computer programming, motor trades and retail trades. At the moment most market participants expect that the November rate hike will be a one-off event, but it does give the BoE just a little bit more breathing room to at least consider a new hiking cycle without damaging the economy too much. They actually might need to, since their newest research released on Monday showed the weak sterling may have a stronger inflationary influence for longer than previously expected.

EUR The euro appears to be immune to the Eurozone’s ongoing political issues, but also to positive data elsewhere. It is taper time in the euro area and the entire market is focused on today’s European Central Bank meeting, where Draghi is expected to announce a revision to the Eurozone’s monetary policy. According to Bloomberg, consensus suggests a cut to €30 billion a month (from €60 billion currently), but for the programme to keep running to September next year rather than ending in March, as is the current plan. There are quite a few variables to be considered and it is expected a volatile reaction of the euro after the announcement as market participants assess the ultimate impact of the decision. The decision is announced at 12.45 BST, and Mario Draghi will speak at 13.30 BST.

USD The dollar continues to strengthen as the race for the Federal Reserve Chair is heating up. Donald Trump said yesterday that Gary Cohn has no chance. Jerome Powell is therefore the frontrunner, followed by John Taylor and Janet Yellen. Trump also said he “likes a lot” Yellen. With regard to macro data, there were a few impressive releases. Core durable goods orders increased 0.7%, the fastest monthly increase since November 2016. New home sales jumped an amazing 19%, rebounding from the hurricane-slump and show the highest growth since 2007.

CAD The loonie collapsed yesterday after the Bank of Canada’s interest rate decision. The central bank decided to keep rates on hold as widely expected. However, the key takeaway from the meeting was not the decision itself, but the central bank’s own expectations of the future of interest rates. The central bank’s own outlook for interest rates is now considerably more cautious, as the loonie appears to play an important role in the country’s exports and inflation target, so it is unlikely to see interest rates increasing above 1.00% for the foreseeable future.

UK news

  • Reuters: UK retailers cut jobs at fastest rate since 2008.  British retailers cut jobs over the past three months at the fastest rate since comparable records began in 2008, due to technological change and rising employment costs, the British Retail Consortium said on Thursday. The BRC, which represents major retailers, said its members employed 3.0 percent fewer staff in the third quarter of this year than during the same time in 2016, and total hours worked fell by 4.2 percent year-on-year. Both were the steepest falls since the BRC started collecting records in 2008, when Britain was in the middle of its sharpest recession in decades. This contrasts with the picture in the broader economy, where the unemployment rate is its lowest since 1975 and job creation has been strong, albeit partly at the expense of wages.

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