Morning Report: 20 June 2018

June 20, 2018

GBP. Sterling continued its losses against the dollar and euro yesterday, and is now approaching its November 2017’s lows. The broad dollar strength, as a general risk off move occurred throughout fixed income and equity markets also, looks to have continued today with sterling starting on the back foot. Today’s political headlines have not helped sterling, as more in-house Brexit uncertainty unfolds. Theresa May faces a vote in the House of Commons, with pro-European rebels in her party fighting for influence over Brexit negotiations. The vote is over whether May can take Britain out of the single market without a deal, or if Parliament should have a “meaningful vote” on the way forward if talks break down. Politico reports that a 90 minute debate will be scheduled for around 13:00 BST with the key vote expected immediately after.

EUR. Euro fell sharply during the morning yesterday against USD but started to rally around noon, although this was not sufficient to compensate for the earlier losses. European Central Bank President Mario Draghi was one of the main culprits of this euro weakness as he gave a speech in the ECB’s annual conference in Sintra, Portugal. He shared that he was pleased by the hiking path currently priced in by markets, once again confirming there seems little room for hawkish surprises from the ECB in the coming period. The timing of the slowdown of growth in the Eurozone in this economic cycle surprised him negatively as well, as it already occurred after 20 quarters, while the historical average expansionary phase in the Eurozone lasted 31 quarters. Today our focus remains fixed on Sintra, as Draghi joins a panel discussion with Federal Reserve chair Jerome Powell and Bank of Japan’s Governor Haruhiko Kuroda at 14:30 BST.

USD. The greenback climbed higher yesterday against all G10 currencies, bar JPY and CHF, which had the DXY dollar index reach its top for the year so far. President Trump’s intentions to slap 10% tariffs on $200 billion of Chinese goods may scare global markets and have pro-trade Republicans aghast, but the dollar for now seems to profit from the flights to safety stemming from this. Housing data was a bit of a mixed bag yesterday, with Building Permits coming in marginally below target at 1.30 million in May and Housing Starts slightly surprising to the upside at 1.35 million in the same month. The Current Account justifies some attention today at 13:30 BST, while Powell’s partaking in the Sintra panel could have an effect on the greenback as well.

CAD. The loonie was nearly one of the worst performing G10 currencies against the dollar yesterday, as oil prices continued to moderate and Trump’s trade rhetoric intensified. WTI crude prices have struggled to maintain above the USD$65 a barrel level in anticipation of the key OPEC meeting in Vienna on Friday. This morning, oil prices have recovered some losses seen yesterday supported by a drop in US commercial crude inventories and the loss of storage capacity in Libya – the loonie is trading flat against USD this morning. Oil prices are a key indicator for the direction of the loonie due to its large stake in the Canadian balance of payments.

UK news

  • Financial Times: Stocks recover as traders assess tariff tension. Buyers came in for Asian equities and European stocks are rebounding as investors refine their response to the threat of a deepening trade dispute centred on protectionist US policies.
  • Wall Street Journal: White House Is Confident It Has an Edge Over China in Trade Dispute. President Donald Trump’s escalation of trade threats against China reflects his belief that Washington increasingly has the upper hand in the dispute, administration officials said, adding he is prepared to withstand pressure from U.S. businesses that might suffer from the conflict.
  • Reuters: May faces new battle in parliament over Brexit. Prime Minister Theresa May faces a showdown with rebels in her Conservative party on Wednesday after refusing to accept demands for parliament to have a “meaningful vote” on Brexit that could stop Britain crashing out of the European Union with no deal.

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