Morning Report: 1 May 2018

May 1, 2018

GBP Sterling avoided major losses yesterday, and even closed slightly higher against the euro, after a bruising two weeks. The latest political drama to engulf Theresa May’s government appeared to have little additional effect on pound yesterday. Today at 09:30 BST the Manufacturing Purchasing Managers’ Index will be released. After last week’s seasonally affected miss for Gross Domestic Product Growth in the first quarter, survey data such as this morning’s release takes on additional relevance.

EUR The euro slid further yesterday, as poor data and ongoing murmurs of political risk in Italy continued to weigh on the single currency. German Retail sales contracted 0.6% in March, consistent with the recent fall in survey data optimism in the economy but nonetheless a much worse result than expected. German Consumer Price Index inflation changed 0.0%. Luigi Di Maio called for new elections in Italy, after months of failed coalition talks. Although the news yesterday had only a muted effect on the euro, it nonetheless raises the prospect of renewed political risk.

USD Yesterday saw the dollar make broad gains across the G10 currency board, with SEK losing out the most. The Personal Consumption Expenditure Deflator, the Fed’s preferred inflation measure, hit the forecast on the head with inflation growth of 0.2% in March. PCE inflation now measures 2% year-on-year, which is in accordance with the Fed’s inflation target. Now the inflation target is being hit, the Federal Open Market Committee may choose to signal more confidence about coming rate hikes this year. The recent broad dollar strength, off the back of rising yields and geopolitical tensions easing, has seen the DXY index test its 200-day moving average, a possible sign that the trend of dollar strength is here to stay. This afternoon at 15:00 BST the ISM Manufacturing Purchasing Manager Index is published, while throughout the day large car manufacturers release their vehicle sales.

CAD Trade tariffs being postponed took loonie by the hand yesterday and had it gain against virtually the entire G10, with only USD being able to hold the line and keep USDCAD unchanged. Canada, the European Union and Mexico all got a month of respite for the trade tariffs, inspiring hopes – once again – that Trump’s bark is worse than his bite. The Raw Material Price Index lend further strength to CAD as it increased by 2.1% in March. Today at 13:30 BST sees the GDP figure for February, while Bank of Canada Governor Stephen Poloz speaks at 19:30 about household debt.

UK news

  • Financial Times: Trump extends tariff exemptions for allies Donald Trump has given the EU, Canada, Mexico and other allies another 30-day reprieve from new steel and aluminium tariffs, delaying the controversial measures days before a high-level delegation heads to China for trade discussions.


  • Reuters: Liam Fox says unelected peers trying to block the people’s will over Brexit Britain’s trade minister said on Tuesday that unelected lawmakers in parliament’s upper House of Lords were trying to block the will of the people over Brexit.


  • Reuters: North and South Korea start to dismantle border speakers, fulfilling summit pledge  North and South Korea began dismantling loudspeakers that blared propaganda across their heavily fortified border on Tuesday, South Korea’s defence ministry said, fulfilling a promise made at last week’s historic summit.

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