Morning Report: 19 April 2018

April 19, 2018

GBP. Sterling took another heavy knock yesterday as the week’s second major data release, Consumer Price Index inflation, missed expectations. Headline CPI inflation fell to 2.5% year on year, significantly lower than the 2.7% expected, while Core Inflation, which excludes fuel, fell to 2.3%. Yesterday’s big inflation miss will be a spanner in the works for the Bank of England, which has been making hawkish noises as of late, leading to wide expectations of a hike as early as May. The last Inflation Report saw headline CPI remaining above target for the forecast horizon, but the pace and breadth of today’s falls suggest this may not be the case. Today’ Retail Sales Figures at 09:30 BST are therefore critical for sterling, and will be all the more interesting due to the inclusion of the “beast from the east” snowstorm, which may make a bad read easy to dismiss.

USD. The greenback was in the top half of G10 currency performers yesterday on a data scarce day on which all action eventually had to come from trade talks. The Japanese President Shinzo Abe met with Donald Trump and agreed to hold talks about free and reciprocal trade, which strengthened USD. Today at 13:00 BST Fed’s Brainard speaks, followed by the Philly Fed Manufacturing Index and weekly Unemployment Claims at 13:30 and Fed’s Quarles in the limelight at 14:30.

EUR. Euro saw a small wobble in the middle of the day yesterday, but eventually closed virtually unchanged against USD and slightly up against other G10 currencies. The Final Consumer Price Index was a tad soft at 1.3%, showing inflation pressures in the Eurozone remain persistently weak. Today at 9:00 BST the Current Account is scheduled to be released.

CAD. The loonie weakened yesterday following the Bank of Canada’s Monetary Policy Report and press conference. Rates were kept on hold, although the overall message was that rates were likely to increase further at a gradual rate in the medium term. In the short term Governor Stephen Poloz seemed comfortable with taking a wait and see approach. Wage growth remained a key issue; as Poloz said some wage measures have moved up towards the 3% level that the BoC would associate with a labour market at full capacity. However, the signal on wage growth was not clear enough, or as Poloz put it himself, “not fully baked”. This means the timing of the BoC’s next hike will be determined in large part by how broad and sustained the recent spike in wages proves.

UK news

  • Financial Times: Davis urges May to publish detailed plan for EU ties ahead of Brussels.  David Davis, the UK Brexit secretary, is urging prime minister Theresa May to get ahead of the EU by publishing detailed proposals for the future UK-EU relationship “as soon as possible” rather than waiting for Brussels to lay down its terms.
  • Financial Times: Unilever faces mounting investor unrest over UK exit. Unilever has been forced to confront a mounting rebellion among some of its largest investors against the Dove soap maker’s decision to abandon its 89-year-old Anglo-Dutch structure and base itself in the Netherlands.
  • Reuters: Global economy sprinting ahead but trade war could end the race. The global economy will expand this year at its fastest pace since 2010, but trade protectionism could quickly slow it down, the latest Reuters polls of over 500 economists worldwide suggest.

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