FX News Today

German GDP growth accelerated to 1.7% in 2015, from 1.6% in 2014 and in line with expectations. On a working day adjusted basis though, growth slowed to 1.5% from 1.6%, so despite the improvement in the headline number the German economy didn’t quite escape the slowdown in world growth, but both numbers are clear above the long term average of 1.3%. The German statistical office said that growth was relatively broad based across the manufacturing and construction as well as the services sectors. Overall then a solid number, although even in Germany structural issues remain and this year the refugee influx will put a strain on the economy.

ECB lowers Greek ELA ceiling to EUR 72 blnfrom EUR 75.8 bln. The Greek central bank said in a statement that the ECB did not object to lowering the ceiling by EUR 3.8 bln, which reflects an improvement of the liquidity situation of Greek banks amid a reduction of uncertainty and the stabilisation of private sector deposit flows, as well as the progress achieved in the recapitalisation process of Greek banks”.

Fed Beige Book: “mostly positive” was the outlook on future economic growth in the District reports for the January 26-27 FOMC meeting, seeming to supplant the “modest to moderate” mantra that had been in place for more than a year. Labor markets were seen to have tightened further, in four districts along with “flat to moderate” wage pressures, half reporting higher wage pressures for more skilled workers and those positions in short supply. Manufacturing remained weakened, with the declines in commodities/oil, the stronger dollar, and slipping global demand remaining headwinds for most districts (energy sector hurt in particular). Consumer spending was moderate, though credit conditions generally improved, along with growth in loan demand. The Book was prepared by the Philly Fed with data collected before January 4, which wouldn’t include the December payrolls print.

Chicago Fed dove Evans said he pays attention to international developments and how they impact the U.S. economy, noting he will monitor the effects of the decline in China’s growth. We thought he might take this global path on the economic outlook and monetary policy, given his dovish credentials. In addition, he says that the Fed is about as transparent as it can be.

 

Main Macro Events Today

• Bank of England interest rate decision: The BoE policy announcement is widely expected to see the bank leave policy unchanged. We expect the vote also to remain unchanged from last month, with 8-1 in favour of leaving the repo rate at its historic low of 0.5%. Come March, it’ll be seven years that the rate has been at this level and we don’t expect a tightening until later in the year. Last week’s December PMI survey data were sympathetic to the view that the BoE is likely to tighten policy later and it will be interesting to see in the minutes in how far the most recent bout of risk aversion and the slump in oil prices have rattled policy makers.
• ECB Monetary Policy Meeting Accounts: markets wait for Draghi’s views on economic and monetary developments.
• US Jobless Claims:S. initial jobless claims are expected to be 272k (median 270k) in the week-ended January 9. Continuing claims are expected to fall to 2,200k for the week-ended January 2. Forecast risk: downward, as layoffs from holiday hiring could boost claims. Market risk: downward, as weaker than expected data could slow the path of rate hikes.

Janne Muta

Chief Market Analyst

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