Morning Report: 11 July 2018

July 11, 2018

GBP.  Yesterday’s first-ever monthly Gross Domestic Product release by the Office of National Statistics saw a mixed bag. Despite the headline GDP figure suggesting the economy grew by 0.3% in May, indices for industrial production and manufacturing dragged on the final reading. The negative surprise in these indexes, especially the negative growth of 0.4% for industrial production in May, gave sterling traders the excuse to sell GBP amidst growing political uncertainty in the UK which saw sterling fall from its 0.3% gains thus far. Ultimately, sterling ended the day at the top of the G10 currency board against the dollar, posting 0.12% on the day. Today, Bank of England Governor Mark Carney speaks at the National Bureau of Economic Research in Boston about the Financial Crisis, where no explicit statements regarding monetary policy are expected.

EUR.   Euro closed within 20 basis points of where it opened against every other G10 currency in a day that saw another big miss in a sentiment index. The German ZEW Economic Sentiment performed deeply below expectations at a score of -24.7, showing that the perfect storm of global and domestic political risk is bringing down the moods of German investors and market analysts. The report was dreadful on many levels, with both the assessment of the current situation and outlook for the future worsening compared to last month, while both components missed their forecast. It should be noted that what the ZEW survey signals does not always translate into other economic surveys and for the German economy it is probably better if that won’t happen this time indeed.

USD. The greenback was one of the currencies among the G10 looking for direction yesterday in a quiet session that was suddenly shaken up near the end of the US trading day when President Trump announced plans to impose fresh tariffs on China. After the already imposed $34 billion worth of tariffs and the $16 billion valued tariffs announced earlier, the newly intended 10% tariffs on $200 billion of Chinese goods make investors lose count about how many packages of trade tariffs are already on their way. Especially Chinese and Hong Kong equity markets incurred heavy losses this morning on the back of this, although the impact on FX markets remains muted for now. Meanwhile, the NFIB Small Business Index beat expectations yesterday, showing that smaller domestic US companies at the moment do not fear the backlash of the tariffs that much at this moment. Today, Final Wholesale Inventories are scheduled for release at 15:00 BST, followed by Federal Reserve speakers Bostic and Williams at 17:30 and 21:30 respectively.

CAD.  The loonie managed to limit its losses yesterday as Trump announced new tariff measures against China. Usually, fresh tariffs imposed by the US flare up NAFTA concerns. However, yesterday’s threat by the Trump administration didn’t weigh on the loonie. Crude oil prices were down 0.8% because of fears that the new tariffs might slow down  global growth, another blow CAD withstood particularly well. Today at 15:00 BST the Bank of Canada announces the new overnight rate, while also the July Monetary Policy Report will be published. A hike is priced in for 90% by markets, so the question then becomes whether concerns over trade with the US will concern the BoC enough to make this a dovish hike, or not. In the press conference that follows at 16:15 the Monetary Policy Committee will undoubtedly elucidate their views on this topic in more detail.

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