Morning Report: 23 July 2018

July 23, 2018

GBP.  Sterling was glad to see the weekend after a torrid last week. Political risk and underperforming data stimulated a 0.65% depreciation over the course of the week, and without Friday’s rally, the figure would have painted a drearier picture. Theresa May clutched at straws until Labour defectors propped up her leadership, pushing harder Brexit amendments to the Brexit white paper through parliament and rejecting soft Brexit alterations. Meanwhile, Retail Sales came in under forecast by 0.6% for June. This week there is little to shout about in terms of top-tier data, while Brexit negotiations will be in the limelight before parliament calls for a summer recess on Tuesday. Before which, Dominic Raab, the new Brexit Secretary, will likely face a grilling by the Commons select committees over his recent appointment as minister.  Michel Barnier, the EU’s chief negotiator, said he is optimistic on a deal being reached by November as he showed flexibility on the EU’s stance regarding a hard Irish border. The claims come amidst both parties stepping up preparations for a hard Brexit, with headlines in the UK reading that Raab has advised to start stockpiling food.


EUR. The euro soared against the dollar on Friday, paring losses of earlier this week, after President Trump tweeted hints about considering the Eurozone and China currency manipulators hurt USD. The move was not solely caused by dollar weakness as euro found some strength after the Italian government countered earlier rumours that the euro-friendly Minister of Finance Giovanni Tria was about to walk the political plank. A soft May Current Account did put a slight break on the euro rally, however, coming in at +€22.4 billion, below the expected €27.2 billion surplus. This week sees Flash Purchasing Manager Indices on Tuesday, German Ifo Business Climate and on Thursday the European Central Bank will gather for a monetary policy meeting and press conference.


USD. The greenback performed exceptionally well up until Thursday last week, making gains against the whole G10 currency board with the exception of CHF. This reversed on Friday, however, as trade war rhetoric rose with Donald Trump threatening to impose tariffs on $505bn worth of Chinese goods in a CNBC interview. Simultaneously he complained about higher interest rates in the US – bringing into question central bank independence in the US. This saw the greenback suffer the wrath of Trump’s twitter fingers, alongside CNBC’s release of his interview threatening further tariffs, which reversed the whole week’s worth of gains as measured by the DXY dollar composite index. This week Jean-Claude Juncker, the president of the European Commission, visits Washington in an attempt to persuade Trump from imposing automobile tariffs on the EU, and the advance reading of US Gross Domestic Product is released on Friday with a rise from 2.0% annualised in Q1 to 4.3% in Q2 expected.


CAD. Unfazed by the precarious political winds blowing from the South the loonie rallied on Friday on the back of strong Retail Sales and Consumer Price Index. Retail Sales in May came in far above expectations at +1.4% (0.6% expected) and the year on year CPI growth was 2.5%, beating the 2.3% forecast. These strong data releases led to the implied probabilities of a rate hike, as suggested by future market pricing, to rise from 50% to 65% for the October Bank of Canada monetary policy meeting. Today Canada’s Foreign Affairs Minister Chrystia Freeland and a Canadian delegation travel to Mexico to meet with the new Mexican President Andrés Manuel López Obrador to discuss the stalled NAFTA talks. Apart from this Canada’s economic calendar remains strikingly empty this week, with the Wholesale Sales today at 13:30 BST being the most important data release.


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