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November 2016

Sterling up on retail sales boost

Published: Thursday 17 November 2016

  • Sterling up on retail sales boost
  • Dollar anticipates strong inflation and December rate hike

Sterling strength continued this morning after a blowout number in UK retail sales figures saw high street activity jump by 1.9% vs the 0.5% expected. That’s the largest increase in more than 2 ½ years. The increase has been attributed to cooler temperatures in October boosting clothing sales - suggesting consumers remain confident despite the recent Brexit vote. 

Sterling has been resilient against the Euro as the market perceives that the UK faces less near term risks than the Eurozone. Upcoming elections and referendums in the Eurozone have caused the Euro to come under significant pressure due to political uncertainty in the wake of the Trump election victory. Not only are investors concerned about the Italian referendum but there are also uncertainties coming from the primaries elections in France and the Austrian Presidential election, which could see a shift to the right emboldening the anti-EU factions.
 
The USD index climbed to its strongest level in 14 years yesterday before paring back earlier gains. The loss in momentum can be attributed to comments from Federal Reserve Bank of St Louis President, James Bullard, who is a renowned Hawk. He suggested “one rate hike is enough to return to neutral”, indicating that the Federal Reserve may raise rates in December and then be done for the time being.  The stronger USD reduces the need for the central bank to raise rates as aggressively. This was evident in producer price and industrial production data, which stagnated in month of October. Those figures were released yesterday. This afternoon brings US inflation data, which might well prompt the December rate hike mentioned above. The forecasts suggest a rise to 1.7% or maybe more. That is something the Federal Reserve would find it hard to ignore.
 
Commodity related currencies had a mixed week.  The Canadian Dollar has struggled for a dominant direction, but one of Canada’s main exports, oil, rose initially by 5% on Tuesday after rumours of an Organization of the Petroleum Exporting Countries (OPEC) production cut. That caused the CAD to spike in value. However, oil prices subsequently tumbled on a significantly larger than anticipated increase in Crude inventories.
 
The Australian Dollar was the weakest currency on the day yesterday, after softer wage data and lower commodity prices questioned the earnings of Australian exporters and the disposable income of Aussie consumers.
 
And researchers at Cardiff University asked people in Wales about their four Members of the European Parliament. They were asked to confirm if they knew the candidates and were given a list of the names. In terms of recognition, topping the list was the UKIP MEP Nathan Hill and in second place was Elwyn Davies. The only problem is that Elwyn Davies is a purely fictitious name and more people identified him that the other three real MEPs. There appears to be a failure of PR somewhere here and, the other thought I have is that maybe Donald Trump is actually a fictitious character and America has been duped.
 

Flight Threat

 
At London Heathrow Airport today, a Caucasian male (later discovered to be a secondary school mathematics teacher) was arrested trying to board a flight whilst in possession of a compass, a protractor, and a slide rule. According border police, he is believed to have ties to the Al-Gebra network and has been charged with carrying weapons of maths instruction. 
 

Today's Major Economic Releases
 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Retail Sales month-on-month 0.0% 0.5%
EUR 10:00 EU: Final Consumer Price Index 0.4% 0.4%
EUR 10:00 EU: Final Core Consumer Price Index 0.8% 0.8%
EUR 12:30 Europen Central Bank Monetary Policy Meeting Accounts    
CAD 13:30 Canada: Foreign Securities Purchases 12.74b 12.23b
USD 13:30 US: Building Permits 1.23m 1.19m
USD 13:30 US: Consumer Price Index 0.3% 0.4%
USD 13:30 US: Core Consumer Price Index 0.1% 0.2%
USD 13:30 US: Unemployment Claims 254k 257k

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Daily Currency Analysis by Denzil Rickerby

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