Morning Report: 8 January 2018

January 8, 2018

GBP Sterling is down this morning as Prime Minister Theresa May is about to embark on a cabinet reshuffle. May has been perceived by many observers of the Conservative Party as lacking the internal support for such a move since last year’s disastrous general election, but this morning’s news reports indicate she is likely to avoid demoting or moving senior figures and potential rivals such as Boris Johnson and Amber Rudd. It’s worth noting implied volatility from three month sterling options fell to its lowest level since December 2014 last week, showing a lack of concern from market participants about future instability. This morning’s main release will be the Halifax House Price Index at 08:30 GMT.

EUR The euro had a volatile session on Friday, ultimately closing lower against USD despite some sharp swings. Crucial coalition talks between potential partners and Angela Merkel’s CDU begin in earnest this week, following more than three months of indecision after Germany’s indecisive general election. A collapse in this final round of talks would be a substantial disruption for the euro, given Germany’s importance to the regional economy. This morning’s data has included a 0.4% contraction in German Factory Orders, which fell 0.4% in November after rising 0.5% previously. At 09:30 Sentix Investor Confidence will be released, followed at 10:00 by Retail Sales.

USD After taking a pummeling last week the dollar is trading up this morning. San Francisco Fed President John Williams said in a Reuters interview conducted on Saturday that three rate hikes made sense to him this year, giving the dollar some support after a bruising week. Friday’s Non-Farm Payrolls report showed only 148,000 jobs being added in December, but November’s figures were revised upwards sharply and Average Earnings rose 0.3% as expected, so overall the report was fairly good. Raphael Bostic, who was appointed head of the Atlanta Fed last year and is a voting member of the rate setting Federal Open Markets Committee, will speak today at 17:40 GMT, followed by another appearance from Williams at 18:35.

CAD The loonie surged and USDCAD dropped like a stone on Friday as Canada’s lastest jobs data was variously described as spectacular, unbelievable, and ridiculously strong. 78,000 jobs were added in December, dropping Unemployment to a record low of 5.7% and putting the Bank of Canada’s next rate decision on the 17th firmly in focus. Today at 15:30 GMT the BoC will release its latest Business Outlook Survey.

UK news

  • Reuters: May to change government ministers soon, senior figures reported to be safe. British Prime Minister Theresa May said on Sunday she would announce changes to her ministerial team soon, with media reports saying her foreign, finance, interior and Brexit ministers would keep their jobs in a reshuffle starting on Monday.
  • Guardian: UK factories optimistic for 2018 despite Brexit concerns, survey finds. Britain’s manufacturers are more upbeat about the state of the global economy than at any time since 2014 and believe demand from overseas will sustain their businesses through another year of Brexit uncertainty, a survey has shown.

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