Morning Report: 25 July 2018

July 25, 2018



From: Simon Harvey
Sent: 25 July 2018 08:23
To: Bart Hordijk; Carlos De Donesteve; Gonzalo de la Torre; Maria Translatium; Ranko Berich; Traders
Subject: MR 250718



GBP. Sterling continued its incremental recovery against the dollar yesterday, eventually finishing the session up 0.34% against the greenback. Brexit headlines were dominated by Theresa May taking back the reins for Brexit negotiations with newly appointed Brexit Secretary, Dominic Raab, deputising. Around 50 civil servants will be relocated into the Cabinet office as May and her chief Europe Advisor, Olly Robbins, spearhead negotiations. Robbins was criticised in the past by former Brexit Secretary David Davis, who claimed that civil servant Robbins’ power in negotiations undermined the ministerial position of Brexit Secretary. Parliament ended for its summer recess yesterday evening, and the 6-week break should calm the momentum of the conservative party factions aiming to oust May whilst removing political uncertainty from looming over sterling for the time being. Data wise, yesterday’s release of CBI’s Industrial Trends Survey for July further evidenced business’ reluctance to invest despite demand remaining sturdy.  Today, CBI release Retailing Volume Sales at 11:00 BST, which is an index that tracks business sentiment within the retail sector, in a week that lacks top-tier data – a moderation in volume sales from 32 to 15 is expected.

EUR. The single currency dangled somewhere at the bottom of the G10 currency board after slightly soft Purchasing Manager Indices set the tone for the day. The euro moved into red territory early on the day already, as German, French and Eurozone Flash Service PMIs disappointed for July scoring 54.4, 55.3 and 54.4 respectively, while the previous month’s print was also revised downwards. The PMIs from the Manufacturing sector proved to be a green beacon amidst this negative news for the Eurozone economy, coming in above the forecast at 55.1. As the Service sector supersedes the Manufacturing sector in economic performance this was, unfortunately for the euro, not enough to turn the momentum around. Today markets hold their breath for the meeting between President of the European Commission Jean-Claude Juncker and President Trump in the White House at 18:30 BST. The topic of the meeting will be trade, with Trump calling the US and the EU “to drop all Tariffs, Barriers and Subsidies!”, though his priority is likely that the EU drops their tariffs first.

USD. After a run of several weeks of strength, the US dollar took a bit of a breather yesterday, losing ground against most G10 currencies. Importantly, the auction of 2-year US government bonds drew the highest yield since 2008. The difference between US government bond yields and German government bond yields are closely monitored by the markets, given that Germany is the largest economy in Europe, as higher yields imply lower demand for the bonds, in turn implying lower demand for the respective currency. The fact that the difference between US bonds and German bonds rose, therefore, implies that, at least by this metric, demand for the EUR was higher than demand for USD. The data coming out was mixed as well, with the monthly House Price Index performing below the expected mark in June at +0.2%, with the flash manufacturing PMI outperforming forecasts at 55.5, but with an underperformance on the Services PMI at 56.2. New Home Sales are scheduled for release at 15:00 BST, with Crude Oil Inventories at 15:30, though in all honesty most eyes will be focused on the Trump-Juncker meeting later in the evening.

CAD. CAD found itself comfortably in the middle of the pack of the major currencies yesterday, profiting to some extent from the tailwinds other resource sensitive currencies felt. WTI crude oil prices scrambling up a bit after being down earlier in the week was the biggest news for the loonie on a day on which no economic data was released. With an empty data calendar ahead, today is shaping up to be equally quiet.


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