Morning Report: 14 May 2018
May 14, 2018
GBP. Sterling made minor gains against USD when measured across the week, but made stronger gains on Friday than the weekly average. With little in the way of UK data today, the market’s attention will be fixed upon tomorrow’s releases of Average Earnings, Unemployment data and the Bank of England’s Inflation Report Hearings. During these hearings, Mark Carney and other Monetary Policy Committee members testify on Inflation and the economic outlook to the Parliament’s Treasury Committee. Whilst inflation has been falling from a high base in the UK, despite no policy tightening, further information on the MPC’s view on inflation will likely move markets.
USD. The greenback lost some ground for the second day in a row against the euro on Friday, while other currencies also benefited from the dollar weakness. After soft Producer Price Index data on Wednesday and a marginally disappointing Consumer Price Index on Thursday, Import Prices coming in at 0.3% on Friday was the third inflation indicator in a week signalling slower price growth. This takes some pressure off the need to discuss a possible fourth US rate hike this year for the Federal Open Market Committee meeting in June. White House National Security Advisor John Bolton stepped up the rhetoric on Iran by saying that European companies that continue to do business with the sanctioned country can become the target of US sanctions as well. Tuesday afternoon will see the release of Retail Sales, with the Capacity Utilisation rate on Wednesday and a handful of Federal Reserve speakers spread out across the week.
EUR. This week may prove quite decisive for the euro, with the second reading of Q1 GDP on Tuesday and the April Consumer Price Index on Wednesday. European Central Bank President Mario Draghi and Chief Economist Peter Praet are set to speak Wednesday. Although it seems unlikely that they will make any significant comments, markets will keep an eye on any additional information given, especially if GDP is revised. Over the weekend, Italy’s anti-establishment Five Star Movement and far-right League formed a populist coalition, after Italy’s President Sergio Mattarella put a time limit on negotiations last week. However, both parties are yet to pick a Prime Minister. With the euro trading relatively flat against the dollar last week, this week may contain enough to carve out a new direction for the single currency.
CAD. CAD was one of the lone losers against USD on Friday and fell to the bottom of the G10 currency board. The loonie had both weak labour market data and diminishing oil prices to blame for its downfall, as Employment Change was unexpectedly negative at -1.1K in April. The loonie may find an opportunity to rally this week, however, with a NAFTA deadline set by House Speaker Paul Ryan for Thursday, and CPI and Retail Sales due on Friday.
FX Elsewhere. The Swedish Krona made some much-needed gains last week after reaching levels not seen since May 2017. Last Wednesday, SEK strengthened by the most since 2015 after CPIF data was released. This is the Riksbank’s favoured measure of inflation and the data release signalled a slight increase, but more importantly that inflation has seemed to stabilise just shy of 2%. This morning PES Unemployment Rate data showed unemployment in Sweden falling to its lowest level in 2008 – a sign that the recent Krona rally may be here to stay.
- Reuters: MI5 head tells EU – Let’s work together to counter militants and Russia Britain and the European Union must build a close security partnership after Brexit to foil Islamic State militant attacks and counter Russia’s malign attempts to subvert Western democracies, the head of Britain’s domestic spy agency said.
- Reuters: Italy inches towards government. Today, leaders of Italy’s anti-establishment 5-Star Movement and the far-right League are expected to see President Sergio Mattarella to reveal their choice for the post. It is up to the head of state to nominate the prime minister, so if he doesn’t like the sound of their pick he could tell them to find another name. If he approves, he would call the nominee in to give him, or her, a mandate to form a government and review their list of ministers. In theory, a vote of confidence could follow later in the week in parliament.
- Bloomberg: European Stocks Steady; Euro Advances With Pound European stocks struggled for direction following gains in Asia as a decline in energy shares outweighed optimism over waning global trade tensions. The euro and pound headed higher as the U.S. dollar came under pressure.