Morning Report: 2 May 2018

May 2, 2018

GBP. Sterling took a hammering yesterday against USD, only making fewer losses than SEK among the G10 currencies. Bleak Manufacturing Purchasing Managers Index data started sterlings decline in the morning, and further losses occurred as the greenback gained momentum. Ultimately cable fell over a percentage point during the day. The decline in Manufacturing PMI to a 17-month low at 53.9 for April suggests the manufacturing sector’s recovery has shifted down a gear. Construction PMI is the only data released for the UK today at 9:30 BST, with a Brexit Cabinet meeting, also pencilled in.

EUR. For the second day in a row, euro was forced on the defensive against USD and it reached fresh three months lows, while the 200 day moving average on EURUSD was also broken. As it was a bank holiday in most continental European countries, eurozone relevant data was completely absent. A few hours before the deadline expired on Monday evening, the Eurozone got another month exemption on the US trade tariffs. This may be less than what was hoped, as trade tensions have only been delayed, not resolved. Today at 10:00 BST we see the crucial first reading of Q1 Gross Domestic Product, telling us more about the much spoken about slowdown in Eurozone growth in 2018.

USD. The greenback made further broad gains again yesterday against all G10 currencies. The ISM Manufacturing Index fell from 59.3 in March to 57.3 for April; however, the most important sub-index, new orders, saw only a modest decrease and is still maintaining high levels by historical standards. Construction Spending in the US also fell 1.7% for March, but it is worth noting both January and February figures were revised up by 2.6%. The markets took some relief in comments by US Commerce Secretary Wilbur Ross yesterday, who is part of Trump’s trade delegation sent to China. Ross stated he had “some hope” trade agreements could be reached despite previous threats of $150b worth of tariffs. As geopolitical tensions have been easing of late, the focus shifts to the Federal Open Market Committee at 19:00 BST. The FOMC are unlikely to change their key lending rate from the 1.5-1.75% band, and with this in mind, the market’s attention will be focused on the FOMC’s statement. The Fed remains the most actively hawkish central bank in major economies, so the market will scrutinise tonight’s FOMC statement in hopes of gaining information about a possible 4th rate hike this year.

CAD. Despite performing well against most currencies, the loonie did close marginally lower against the greenback yesterday. February’s Gross Domestic Product figures came in above par at 0.4% month-on-month growth. Strong growth in the extraction sector, which did particularly well, was more than sufficient to drown out a weak real estate sector. BoC Governor Stephen Poloz struck an optimistic tone yesterday in his speech about household debt while avoiding giving any new comments on monetary policy.

UK news

  • Reuters: Trump trade chief wants to open China, not change its economic system. U.S. President Donald Trump’s chief trade negotiator said on Tuesday he was not looking to negotiate changes to China’s state-driven economic system in trade talks in Beijing this week but would seek to expose it to more foreign competition.
  • Financial Times: Theresa May faces confrontation over EU ‘customs partnership’. Theresa May is facing a confrontation with Conservative party Eurosceptics over her support for a new hybrid “customs partnership” between Britain and the EU, which they claim is “bonkers” and could see the UK forced to stay in a customs union by default.
  • Bloomberg: Goldman Sachs Growth Tracker Shows Global Slowdown Is Contained. The moderation in global economic growth appears to be contained, according to a tracker by Goldman Sachs Group Inc. Over the past two years, the gauge picked up the world economy’s upswing and subsequent softening. First-quarter data signal a divergence between developed and emerging economies, Goldman economists led by Jan Hatzius wrote in a note.

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