Morning Report: 18 April 2018

April 18, 2018

GBP. Sterling remains below yesterday’s open against both EUR and USD, having reached post Brexit highs against the greenback yesterday morning before selling off after UK labour market data. Although Unemployment fell to a fresh low of just 4.2%, wage growth including bonuses did not accelerate as expected. The week is far from over for sterling, however: today at 09:30 GMT inflation data will be released by the Office for National Statistics. Yesterday’s slightly soft wage reading will not be enough to introduce any extra uncertainty for the Bank of England’s meeting in May, which is expected to be a rate hike. But should today’s inflation figures or tomorrow’s Retail Sales contain any nasty surprises, the BoE could well choose to hold fire.

EUR. The euro softened slightly compared to USD yesterday, as further survey data suggested a substantial cooling in eurozone growth. The ZEW survey was released and showed another substantial deterioration in the German Economic Sentiment index, which fell to -8.2 in April. The Economic Sentiment component tracks expectations of the future, but the subindex tracking current conditions was considerably more positive, suggesting that although times are good now for German businesses, optimism for the future was deteriorating. Today at 10:00 the Flash Eurozone Consumer Price Index is on the menu.

USD. The greenback managed to put sterling on the back foot yesterday, while it was more or less flat against euro. The data was firm, with March Industrial Production rising 0.5%, March Housing Starts increasing 1.9% and Building Permits up 2.5% in the same month. The growth trend in these sectors, therefore, continue to look steady. Today we have two Federal Open Market Committee members scheduled; William Dudley speaks at 20:15 BST and Randal Quarles takes the stage at 21:15.

CAD. The loonie had a quiet day yesterday as anticipation built ahead of the Bank of Canada events this afternoon, seeing some mild gains versus USD. Today’s Monetary Policy Report and press conference represent a genuine unknown for the loonie, as the BoC must weigh unique reasons to either signal a sustained series of rate hikes or continue a wait and see period. The Canadian economy remains in good shape overall, and wage growth is rising by some measures, such as the Labour Force Survey. On the other hand, recent speeches from policymakers including Poloz and Lane suggest the BoC may be optimistic of higher capacity growth in the economy. Combined with new entrants into the labour force, this means that the economy can continue to run hot for a while without generating undue inflationary pressure, suggesting a doveish response from the BoC. The BoC Monetary Policy Report will be released at 15:00, followed by a presser at 16:15.

UK news

  • Bloomberg: Theresa May Faces a New Brexit Challenge From the House of Lords U.K. Prime Minister Theresa May’s Brexit strategy faces a renewed threat on Wednesdaywhen her flagship bill returns to Parliament’s upper chamber, where Lords of all political stripes are seeking to amend it.
  • Reuters: South Korea says discussing peace deal with North Korea ahead of summit South Korea said on Wednesday it is considering how to change a decades-old armistice with North Korea into a peace agreement, as U.S. officials confirmed an unprecedented top-level meeting with the North Korean leader.
  • Financial Times: Brussels seeks emergency powers to prepare for hard Brexit Brussels is issuing dozens of legal proposals on Brexit over the next 10 weeks, in a flurry of lawmaking to prepare the EU for a sharp break from the UK — partly by giving emergency powers to the bloc’s institutions.

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