Macro Events & News

FX News

European Outlook: Stock markets which already headed mostly south yesterday continued to decline in Asia overnight, with as oil prices remain below USD 53 per barrel and concerns about China are weighing on sentiment in thinning holiday trade, and with markets in Tokyo closed. Hong Kong stocks are hit by capital outflows. Deutsche Bank agreed to pay USD 7.2 bln and Credit Suisse USD 5.3 bln in U.S. mortgage probes, while the Italian government is ahead with its pan to provide USD 20 bln for troubled banks, with Monte Paschi planning to ask the government for a “precautionary” capital increase. U.S. stock futures are mostly slightly higher, as is the FTSE 100 future, but with DAX and FTSE 100 still at lofty heights, investors seem cautious to push out indices further ahead of the holidays. The calendar in Europe includes  final Q3 GDP readings from France and the U.K. and the Swiss KoF leading indicator.

German Jan GfK consumer confidence: Rose to 9.9 from 9.8 in the previous month, the third consecutive rise and while the reading remains below the levels seen at the peak last year, the renewed improvement supports hopes for robust consumption trends going into 2017. However, the breakdown, which is only available until December, showed a rise in business as well as income expectations, but despite this the willingness to spend actually fell back to a reading of 48.0 from 51.2 in the previous month. At the same time the willingness to save also dropped further into negative territory though and price expectations fell also further into negative territory.

Yesterday’s U.S. reports: Revealed a significant upside Q3 GDP surprise with a headline boost to 3.5% from 3.2%, and firmness in “real” consumption in the November personal income report that lifted Q4 GDP growth estimate to 1.5% from 1.3%. Yet, we also saw weak equipment and inventory data in the durable goods report that restrained growth outlook, beyond the expected big 4.6% November headline orders drop attributable to a 13.2% transportation plunge. A 21k initial claims surge to 275k in the BLS survey week was disappointing, though the spike is likely due to holiday volatility, and the trend in claims remains encouraging. Finally, we saw a flat leading indicators figure for November that modestly beat estimates, while the Bloomberg consumer comfort index rose yet again, to a 20-month high of 46.7.

Eurozone 2017 – Political Risks Take Centre Stage: The Eurozone recovery is continuing at a moderate pace, inflation is picking up from very low levels, unemployment levels are coming down. The ECB’s very accommodative policy stance has not only helped Eurozone spreads to come in, but also continues to underpin lending and robust consumption and there are tentative signs that even investment is picking up again. But as Draghi confirmed the central bank’s policy of ongoing monetary accommodation through to the end of next year, it is the political arena that will take centre stage for 2017.

ECB sources” say it will wait until after German elections in September before its next policy move, according to Reuters headlines. Hardly ground breaking news, considering that the ECB effectively clarified its policy stance through to end 2017 at the last meeting and the German election data is not yet known, but has to take place before October 22. It says that “no option is off the table” if the economy worsens, which is of course just another way to repeat Draghi’s message from the press conference that QE purchases can be stepped up if necessary. However, the report says the ECB aims to buy as few bonds as possible below the depo rate from January, which is sort of contradictory, but the thinned markets can make of it what they will.


Main Macro Events Today                

  • Canada GDP –  GDP to expand 0.1% m/m in October after the 0.3% gain in September. Total retail sales volumes grew 0.6% in October. A 0.9% m/m bounce in wholesale shipment volumes contrasted with the 1.7% plunge in manufacturing. But housing starts fell 12.1% to a 192.3k pace in October, consistent with a negative contribution from construction production. The outlook for mining, oil and gas production is mixed. Energy export values grew 5.5%, but prices did climb in October, suggesting that volumes may be disappointing. The manufacturing report revealed a 1.7% pull-back in petro and coal production. The 0.1% gain that we expect in October GDP combined with the 0.1% growth rates in November and December equate to a 1.9% growth rate in Q4 (q/q, saar). That would overshoot the BoC’s 1.5% estimate after the 3.5% Q3 GDP gain eclipsed the Bank’s 3.2% estimate. Growth is running slightly better than expected in the second half of 2016, consistent with a modestly more upbeat outlook in the January MPR that maintains no-change-for-an-expended-period as the baseline for BoC policy.


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Stuart Cowell

Market Analyst


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