Daily Market Brief – 21 January 2016

Labour data stops Sterling slide

Quote of the day: “Well done is better than well said”

January 21st: Highlights

  • World Economic Forum continues
  • ECB Press Conference
  • Philly Fed Manufacturing Index
  • US Unemployment Claims
  • US Crude Oil Inventories

Sterling Comment

Yesterday, the main focus on the calendar was the UK labour data. The UK unemployment fell to 5.1% (from 5.2%) and jobseekers dropped -4.3k. This is the lowest level in almost a decade, which helped eased the pressure on the pound, and allowed Sterling to rebound from the preceding sell-off, but wasn’t enough to form any real fresh support and Sterling is still on the back foot after Carney comments on Tuesday sparked the sell-off.

FTSE entered ‘bear market’ territory (qualifying from a 20% drop from the high), closing 3.46% lower yesterday. The widespread lack of support is driving volatility across equity markets and fearful moves in currency markets.

Global Comment

Safe haven plays are still a dominant theme, benefitting JPY, US Treasuries and gold. The oil price dived by a further 7% yesterday after the International Energy Agency noted the market was “drowning in a pool of oversupply”. As if we didn’t know.

The CAD put in the best performance of the day, thanks to the Bank of Canada surprised the market by leaving rates unchanged at 0.5%. Much of the market had been expecting a 0.25% cut, so the CAD enjoyed a relief rally after the announcement yesterday and rose 0.7% against the US dollar.

In the US, we saw the monthly CPI figure providing an update to US inflation for the first time since the Fed raised rates. Inflation was up only a little at 0.7% (0.8% forecast). This didn’t help the dollar much, because if this trend continues it’s likely to delay any second rate hike from the Fed.

Today, the main focus will be the ECB meeting. Will make another move, or adopt the ‘wait and see’ approach? In December the ECB surprised markets by not employing the widely expected dramatic increases to QE. Since that meeting, EUR is up 8% against GBP and 3% against USD. Whilst the general market forecast is that it is unlikely that the ECB will move again this time, ECB president could send it higher again today in the press conference at 1330GMT if Draghi is not convincing in his efforts to talk the EUR down.

The Philly Fed is also at 1300GMT and is expected to be -5.0. Crude oil inventories caused volatility in the oil markets last week. The announcement is at 1600GMT with an inventory build of 2.6m barrels.

As an after-note, if you think things are bad for Sterling at the moment, spare a thought for the Russian rouble. It has fallen to its lowest value against the dollar since the redenomination in 1998. Since 2014, the rouble has lost about 57% of its dollar value. Closely tracking the oil price over the last two years, where Crude has fallen around 70%, expectations for a continued low oil price deliver a bleak outlook for the Russian currency. This is causing a few headaches for the central bank, wanting to raise rates to combat the high inflation and help the weak currency, but also wanting also to cut them to stimulate weak growth. Dusting off the old economics textbook, I’m reminded this nightmare situation is called stagflation.

Have a great day!

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Paul Plewman

Paul Plewman
Director of Sales & Operations
t: +44 (0) 20 7096 1036
e: paul@currencytransfer.com


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