Morning Report: 28 November 2017

November 28, 2017

GBP Aside from a brief patch of volatility, this morning’s Financial Stability Review and Bank Stress Test results from the Bank of England have passed without incident for sterling. The seven largest lenders tested in the exercise passed the stress test, despite the BoE modelling a doomsday scenario where the domestic economy contracts 4%, global growth is -2.4%, and large falls are seen in domestic and international property prices. The Banks were also resilient to a “disorderly Brexit”, without a transitional agreement with a smooth change to new trading arrangement with the EU. Speaking to reporters, Mark Carney went as far as recommending how long he thought a Brexit transition period to be – 18 to 24 months at the least, to be agreed “the sooner the better”.

EUR The euro maintained its momentum for most of the day yesterday, reaching a two month high against USD, before the greenback found its legs and began to rally, leaving EURUSD trading lower this morning. The selloff seen in Chinese equities continued overnight, but was of little benefit to the single currency, as past risk-off moves have been occasionally. This morning’s data will include the German GfK Consumer Climate survey at 12:00 GMT.

USD After a mixed start to the week, USD began to regain momentum yesterday afternoon and has had a mini rally since then. Monthly New Home Sales data showed sales surging to their highest level in a decade, beating expectations by a wide margin. The calendar gets significantly more interesting today, with several data releases in the afternoon and nomination testimony from the incoming Federal Reserve Chair Jerome Powell to lawmakers. The Goods Trade Balance will be released at 13:30 GMT, accompanied by Wholesale Inventories. House Price Indices from the FHFA and Case Shiller will be released at 14:00, followed at 15:00 by CV Consumer confidence and the Richmond Manufacturing Index. Powell’s testimony will start at 14:45, although new information on monetary policy seems extremely unlikely given he has already released a statement in support of policy continuity.

CAD Jitters in spot oil prices and strong US data in the afternoon combined to give the loonie a substantial knock yesterday, ahead of today’s Financial System Review from the Bank of Canada. Ahead of the review price indices for Raw Materials and Industrial Products will be released at 13:30 GMT. Given the BoC has raised interest rates two times this year, the results will be interesting, although with Canadian banks in a relatively strong position generally the biggest question seems to be how consumers will react to higher mortgage rates, given sky high household debt. The Review will be released at 15:30 GMT, followed by a speech from Governor Stephen Poloz at 16:30.

UK news

  • Telegraph: David Davis under fire for ‘editing’ 58 reports into economic effect of Brexit – saying they will not damage EU talks. Dozens of studies into the impact of Brexit on various parts of the economy do not contain any information which will damage the negotiations with the European Union, David Davis has said.
  • Reuters: UK banks could cope with “disorderly” Brexit, Bank of England says.  Britain’s banks could cope with a “disorderly” Brexit without needing to curb lending or be bailed out by taxpayers, the Bank of England said on Tuesday after carrying out its annual health check on lenders.

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