Morning Report: 13 July 2018

July 13, 2018

GBP.  Sterling started yesterday’s session tentatively as the much anticipated Brexit white paper was to be released at some point throughout the day. The document, which was meant to outline the deal in which government was aiming to reach with the E.U., was eventually released at 1:00 pm just before Dominic Raab, the new Brexit Secretary, took to the floor in the House of Commons. Sterling fell thirty pips in a knee-jerk reaction, but eventually clawed back its losses, ending the day flat against the dollar and euro. The white paper didn’t set out much more than the statements in the Chequers press release suggested, with the government aiming for a single market for goods with the EU and a facilitated customs arrangement. This morning, Donald Trump has come out and stated that the current Brexit plan will likely kill a UK-US bilateral trade deal as the US would negotiate with the EU in the case of a soft Brexit. The headline has seen GBPUSD fall below yesterday’s lows this morning.

EUR.  The hopes to see some movements on euro this week were all set on the European Central Bank’s Meeting Minutes but as they brought little news, movements on euro crosses were mostly caused by developments elsewhere. Dovish points were mostly reiterated and the prospect of finding out more about any potential dissenting tones within the Governing Council proved illusionary. Eurozone Industrial Production meanwhile managed to marginally outperform expectations and came in at +1.3% for the month of May. German Wholesale Prices grew stronger than forecast at 0.5% in June, while the rest of the day the meeting of the European Union Finance Ministers in Brussels seems to be the best bet as a source for any volatility on the single currency.

USD. A soft inflation reading and a mild easing of trade concerns delivered a mixed day to the greenback, posting losses against emerging market currencies, CAD and AUD, whilst making further ground on JPY and CHF. The announcement that the US is open to further negotiations with China after previously threatening further tariffs improved the general risk mood on markets, which was further reflected by stock indices ending in green territory around the globe. Yesterday, China’s trade balance with the US was released, which saw their surplus reach historic highs of USD$28.97bn for June. This reading was likely inflated by the recent yuan depreciation because the trade balance is reported in dollar terms, though US importers hoarding Chinese goods before the tariffs come into play also probably played a role. The release likely riled up trade hawks within the White House, which may hamper possible negotiations that was hinted at yesterday. This week’s US data releases focused on inflation, with the Producer Price Index posting a huge uptick in the prices producers were charging for their goods, likely due to foresight on high material costs due to tariffs. The Consumer Price Index yesterday, however, showed subdued inflation on the consumer side with a slight uptick from 2.8% in May to 2.9% in July. Today at 13:30 Import Price will be released, completing the triple whammy of inflation data for the US this week.

CAD. The loonie was one of the best performing G10 currencies against the dollar yesterday, along with the Aussie dollar, in a general risk on environment that saw emerging market currencies post some hefty gains too. US Treasury Secretary Steven Mnuchin said yesterday that the administration is very focused on NAFTA when testifying to Congress. With no negotiations pencilled in for July, Mnuchin said things should pick up closer to fall, but ratification from Congress will be unlikely until 2019. Little top-tier data is released for the loonie today, but at 14:00 BST Existing Homes Sales will be released.

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