Morning Report: 2 March 2018

March 2, 2018

GBP Sterling had a mixed day,with inroads against USD, CAD and AUD, but losses to EUR, NOK and JPY. Once again Brexit dominated headlines, with Theresa May and Michel Barnier trading barbs over this week’s Draft EU text. The Nationwide House Price Index declined with 0.3% in February and the Manufacturing Purchasing Manufacturing PMI dipped slightly to 55.2. Theresa May is due to deliver a speech this afternoon titled “Our Future Partnership”, in which she will reportedly call for internal UK unity while setting out five “tests” for any potential Brexit deal.

USD The greenback weakened across most of the G10 currencies yesterday, including sterling and euro, after a week which was mostly characterized by dollar strength. The main driver for this was President Donald Trump surprising friend and foe by pushing through on his protectionist agenda and revealing his plans for a 25% tariff on steel and 10% on aluminium. Powell’s testimony for the Senate was slightly more cautious than his Tuesday testimony, elaborating on how he did not see evidence the economy is overheating, or of a decisive move up in wages. Revised University of Michigan Consumer Sentiment at 15:00 GMT will be the most important economic data to be released today.

EUR Euro seemed to be destined for another day of minor losses against USD, but rallied powerfully yesterday evening and in the overnight to now trade firmly above yesterday’s open, while it also did well against the rest of the G10. The Eurozone’s Final Purchasing Manager Indices came in closely in line with what the earlier flash PMIs told us, suggesting that the buoyant growth of the fourth quarter may not be repeated again in Q1. In Italy political risk softened a modicum as the Finance Minister candidate of the Five Star Movement told media his party does not seek a euro exit. German Retail Sales unexpectedly contracted by 0.7% this morning, bringing a weak start of the year to Germany. Producer Purchasing Prices for the Eurozone are destined to be published at 10:00 GMT.

CAD The loonie initially took a hit after Trump announced tariffs for steel and aluminium, as this can be seen as a sign the White House is willing to play hard ball over trade policies, though quickly recovered afterwards, and eventually closed flat on USDCAD. The deficit on the Current Account was lower than expected in Canada’s fourth quarter, mainly thanks to a lower goods deficit. Today at 13:30 GMT the monthly reading of Canada’s Gross Domestic Product growth is released for December.

UK news

  • Financial Times: Theresa May aims to calm Brussels fears with key Brexit speech Theresa May will on Friday attempt to allay fears in Brussels that she wants to “have her cake and eat it”, as she sets out for the first time her detailed proposals for a future British trading relationship with the EU. In a long-awaited speech, Mrs May will deliver what aides said would be a “warm message to Europe”, including promises that Britain would not try to undercut the EU in areas such as regulation and state aid.
  • Reuters: Asia fears trade war after Trump plans hefty steel, aluminum tariffs U.S. President Donald Trump’s planned tariffs on steel and aluminum risk retaliation from other economies and could cost jobs, Australia’s trade minister said on Friday, while China predicted harm to trade if other countries follow the example of the United States.
  • Reuters: European shares fall as trade tensions weigh European shares fell to new two-week lows on Friday after Donald Trump said the United States would impose tariffs on imported steel and aluminium, prompting worries over a global trade war.

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