Daily Market Brief – 15 January 2016

Weekend woes

Quote of the day: “Hard work is a good hedge for bad luck”

January 15th: Highlights

  • Sterling stronger on BoE vote but downside pressure remains
  • Euro volatility rises after rumour ECB may not increase QE
  • US Retails Sales
  • US PPI Data
  • New York Fed manufacturing
  • Michigan Consumer Sentiment figures

Sterling Comment

Sterling was sold off before the BoE vote, in anticipation of moving back to a 9-0 vote, but was lifted off the lows when the BoE vote remained at 8-1. Sterling strengthened, as the BoE tone was largely unconcerned over the recent market turmoil or the longer-term effects of low energy prices. However, the rebound was short lived and Cable is lower again on the open today.

UK construction data is unlikely to reverse fortunes for GBP and Sterling is expected to remain vulnerable to wider market trends today, but weak US data could help Cable ahead of the weekend.

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Global Comment

Following a report by Reuters, suggesting that the European Central Bank was sceptical about the need for more QE, the EUR gained over 0.5% against the USD. The ECB will announce its policy decision next week and is likely to weigh on the single currency.

Safe haven flows are, once again, at the forefront as the oil price has fallen lower again overnight, with the JPY stronger and GBP weaker, along with the commodity currencies. Whilst oil bounced off the low and traded most of the day above the $30 mark, the price has come back under pressure overnight. Interest in buying JPY was renewed following BoJ upbeat comments on the Japanese economy, suggesting that the recent oil price declines will be positive for the Japanese economy.

Further disappointing data from China added weight to market sentiment. New Yuan Loans growth (bank lending into the economy) significantly missed forecast and Money Supply growth also missed target.

Yesterday’s comments from St Louis Fed President James Bullard, now a voting member of the FOMC, have been viewed with interest. Historically a hawk, arguing for a rate hike, he warned of how the falling oil price could impact inflation expectations and future monetary policy decisions. This calls into question the pace of future rate hikes from the US.

This afternoon we have US data to look forward to. Retail Sales forecasts a +0.2% gain on the month, but keep in mind that retail sales has a recent history of missing forecasts. The PPI inflation is expected to pick up slightly to -1.0% (from -1.2% last month) and Michigan Sentiment is expected to improve slightly to 93.0 (from 92.6 last month), all of which will give the market plenty to digest.

Have a great day!

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Paul Plewman
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