Morning Report: 21 May 2018

May 21, 2018

GBP. Sterling contained its losses during another week of broad dollar strength last week, with most of its losses occurring on Friday. This week’s data has the potential to be decisive for the UK economy with the Consumer Price Index released on Wednesday and Retail Sales out on Thursday. Bank of England economists will be keeping a close eye on this inflation report for April, to see if inflation has fallen even further than last month’s 2.5%. With falling inflation and stagnant household spending, the BoE decided not to raise interest rates on May 10th. Both CPI on Tuesday and Retail Sales on Wednesday will test the bank’s resolve should these previous effects not prove transitory.

USD. The dollar index DXY made further gains last week, extending its upward trend for the 5th week running. Only NZD and CHF made gains against the dollar out of the G10 currencies on Friday, whilst AUD and NOK traded flat. US Trade Secretary, Steven Mnuchin, said on Sunday that trade talks with China have borne fruit. Mnuchin told Fox News “we have agreed to put the tariffs on hold while we try to execute the framework”, with this statement following mixed reports last week that China bowed to Trump’s demand that they cut their trade surplus with the US by $200bn. With little in the way of headline US data releases this week, the focus will be on how trade talks with China unravel, as well as US-South Korea talks on Tuesday. South Korean President Moon Jae-In is set to meet Trump in Washington to discuss the plan of action for denuclearisation talks with North Korea next month, following concerns last week that the historic summit could be cancelled.

EUR. Most of the major Eurozone economies have another bank holiday today, with the Eurozone data calendar waiting until Wednesday to get started. On Wednesday, the German Purchasing Managers Index is released alongside Eurozone wide PMIs, with Germany’s final reading of GDP set for Thursday. Thursday sees the European Central Bank’s latest meeting minutes released, which will give a detailed account of the discussions that drove the recent monetary policy decision. The minutes are likely to be dominated by discussion of softening growth in the Eurozone for Q1 and whether the data reading was transitory or a structural moderation. Also on Thursday, French President Emmanuel Macron visits Russia and German Chancellor Angela Merkel starts her two day visit to China. Both visits come in the wake of heightened tensions following US intervention in Syria and Steel and Aluminium import tariffs imposed.

CAD. The loonie stemmed its losses against the greenback relatively well last week, sitting in the middle of the G10 currency board. Most of the loonie’s losses came on Friday, with Brent crude prices moderating following Thursday’s rise above the $80 a barrel level. With NAFTA talks still ongoing, but increasingly looking like they won’t come to fruition in time for Congress to ratify a new deal, focus on the loonie may diminish this week with a relatively bare economic calendar.

UK news

  • Financial Times: Italian media point to little-known professor for PM role. Giuseppe Conte, a little-known 54-year-old professor who specialises in public administration law and has hardly any political experience, has emerged as the frontrunner to be prime minister for Italy’s nascent populist government, according to Italian media.
  • Reuters: UK financial sector wants global talent on tap after Brexit. Costs for hiring bankers, accountants and lawyers from outside Britain will soar after Brexit and threaten London’s standing as a global financial centre unless the immigration system is urgently reformed, a report said on Monday.
  • Wall Street Journal: Venezuela’s Maduro Wins Re-Election Amid Opposition Boycott. Nicolás Maduro won re-election to a six-year term in a Venezuelan presidential election deemed illegitimate by the opposition and foreign governments, paving the way for heavier international sanctions amid widespread discontent over his management of an economy in free fall.

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