Morning Report: 5 January 2018

January 5, 2018

GBP The British pound had a quiet day yesterday in which gains were made on cable and other G10 currencies, but losses were endured against euro. December Car Sales showed their biggest drop since 2009, a sign that consumers are postponing big ticket purchases. The December Services Purchasing Manager Index had a healthy reading of 54.2, though the details were mixed. The new order growth slowed down to a 16-month low, while the business activity in the sector saw a sharp rise in December. Sterling is heading for an early weekend, as today’s data calendar remains empty.

EUR Euro surged yesterday, but halted its advance as sudden as it came, only to pace nervously just below the three year highs on EURUSD which were put on the boards last September. The December Service PMIs were marginally above expectations at 56.6 and contained a handful of records on various subparts of the report. It indicated that risks for inflation in the Eurozone appear to be tilted to the upside for the coming months. November German Retail Sales this morning were beyond solid and jumped up 2.3% month-on-month, making us forget the drop of 0.9% that came out of the blue last October. Today at 10:00 GMT we may see some first glimpses of strengthening inflation as the Eurozone Consumer Price Index Flash Estimate is published.

USD The greenback was facing headwinds across the board yesterday and had to give up some ground to sterling and euro, although it is back on the offensive again this morning. The weakness of the dollar was inconsistent with the data that came out, which was actually quite good. The ADP estimate of Non-Farm Payroll growth was well above expectations at +250K and the Final Services PMI showed a score of 53.7, again better than expected. Elsewhere, North Korea accepted South Korea’s invitation for diplomatic talks next week for the first time in two years, which should help ease tensions in the region. Today at 13:30 GMT the Non-Farm Employment Changes are published together with Unemployment figures and Average Hourly Earnings, followed at 15:00 by the ISM Non-Manufacturing PMI.

CAD The loonie had plenty of reasons to strengthen yesterday, which it indeed did against the dollar, although the trading was more mixed against the rest of the major currencies. The December Raw Material Price Index was one of the main reasons for loonie strength, since it accelerated with a hefty 5.5%. This is a double edged sword for the loonie, because higher resource prices are passed on to consumers at some point, which increases consumer inflation, while it is also a boost to Canada’s prominent raw material sector. Today at 13:30 GMT we have the Employment Change, Unemployment figures and the Trade Balance, followed at 15:00 by the Ivey PMI.

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