Morning Report: 10 May 2018

May 10, 2018

GBP. Sterling traded sideways against the dollar yesterday and made minor gains versus the euro. Weak first quarter data coming out of the UK has all but destroyed the chances of a rate hike by the Bank of England today at 12:00 BST. The main focus will be on the monetary policy statement, which addresses the economic conditions that are driving their current decision, along with the Monetary Policy Committee’s outlook on the UK economy. The question remains whether this outlook will adjust for inflation falling faster than previously expected, and how this may drive their future decisions. Further data is released this morning at 09:30 BST such as the UK Trade Balance and Manufacturing Production.

EUR. The euro nearly lost out to the whole of the G10 currency board yesterday, if it wasn’t for a poor performance by JPY and CHF. With little in the way of data released, questions over the impact of the US pulling out of the Iran Accord on European companies lingered. The leaders of France and Germany focused, yesterday, on encouraging Iran to stay in the 2015 nuclear deal by providing enough economic incentive to counteract US sanctions. Talks on how to proceed will start next week, when German, French and British Foreign Ministers meet with their Iranian counterpart. With bank holidays across most of Europe today, the data calendar is weak for the euro, but the ECB economic bulletin is pencilled in for 09:00 BST.

USD. Apart from some losses to the Swedish Krona, which made some much-needed gains against USD, the dollar performed relatively well yesterday. At close, the greenback made gains on the euro but lost out to Australasian and Nordic currencies. Yesterday saw the US Producer Price Index fall for April to 0.1%, with core PPI falling but still hitting forecast at 0.2%. The headline figure was held down by a 1.1% drop in food prices following the rapid growth in March of 2.2%. With the US pulling out of the Iranian Nuclear deal dominating headlines, geopolitical risk continues to build. Today sees the release of the Consumer Price Index at 13:30 BST. CPI isn’t the Fed’s preferred inflation measure but is nonetheless worth watching for any surprises.

CAD. The loonie made steady gains against the dollar yesterday, only losing out to NOK and SEK, as Brent crude and WTI reached levels not seen since November 2014. Oil prices rose as Donald Trump made the unilateral decision to leave the Iran Accord, and re-impose economic sanctions on Iran. Yesterday also saw the number of building permits issued in Canada increase by 3.1% for March following a 2.8% decline in February. This rise in was driven mainly by increased demand for permits to build residential properties, as Canadian municipalities issued $5.4bn worth of permits. This is a positive development for Canada’s housing market, which has been on shaky ground recently. Further housing data is released today with New Housing Price Index released at 13:30 BST.

UK news

  • Financial Times: US turns economic might on its allies over Iran. Even as European leaders prepared their pleas for exemptions from Donald Trump’s sanctions on Iran, advisers were warning of a deepening chill on multinationals’ willingness to do business with the Islamic Republic.
  • Wall Street Journal: Weak U.K. Data Clouds the BOE’s Interest Rate Plan. When the BOE last published forecasts for growth and inflation in February, Gov. Mark Carney said the key interest rate would have to rise “somewhat earlier and to a somewhat great extent than we had thought.” Investors immediately looked to May 10 for liftoff, holding to that belief until mid-April, when a combination of fresh guidance from Mr Carney and a series of very weak economic data releases changed the opinion of most BOE watchers, who now expect the key rate to remain at the crisis-era setting of 0.5%.
  • Bloomberg: Dollar Declines as Treasuries Climb; Stocks Mixed. The dollar took a pause from its recent rally on Thursday, declining as traders confronted a host of catalysts from political risks to missiles in the Middle East. It was a mixed picture across stock markets, with European equities edging lower and those in Asia rising.

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