Morning Report: 22 March 2018

March 22, 2018

GBP Sterling’s big week continued yesterday, after wage growth printed faster than expected in January and the pound rallied strongly against USD. The latest labour market data from the ONS showed the Unemployment Rate dropping, while Average Earnings rose faster than expected. The most widely reported wage index, which is the three month average including bonuses, rose by 2.8% year on year, the fastest in more than two years. The increase was largely due to a bumper round on bonuses in January; excluding bonus payments wage growth was a far less impressive and rose just 0.13% month on month – an annualised growth rate of 1.6%. Today at 09:30 GMT the latest Retail sales figures will be released, and at 12:00 GMT the Bank of England’s latest rate decision will be published alongside a statement, and minutes. How risks to the inflation outlook have changed will be the key topic.

USD USD weakened yesterday as the Federal Reserve raised interest rates and new Governor Jerome Powell gave his first official press conference. Jay Powell’s first Fed presser did not live up to expectations of a more hawkish signal, with the FOMC raising rates and making some vague hawkish noises about the future while maintaining its cautious approach to policy tightening. As with his previous testimony to lawmakers, the Fed Chair stuck to the “Powell Doctrine” of studiously avoiding commenting on political issues. If the Fed will react to trade or fiscal policy, it will do so only once it is looking directly at the economic effects of those policies. It was interesting to note, however, that the FOMC median member projections did include a mild inflation overshoot in 2019 and 2020. The fact that this overshoot did not prompt a policy response ultimately underlined the fact that Yellen’s cautious approach to policy is alive and well. Weekly Unemployment Claims will be released at 12:30 GMTtoday, followed at 13:00 by the House Price Index.

EUR The euro was out of the spotlight yesterday, but managed to reverse its recent losses against the US dollar. The euro data calendar was quiet yesterday but was more eventful this morning with the release of Markit Purchasing Managers Indices for a number of Eurozone nations. The data showed March Flash Services PMI at 55.0 and Flash Manufacturing PMI at 56.6, both below expectations and lower than the previous month, pointing towards a downturn in Eurozone growth in Q1 2018.

CAD The loonie had a cracker of a day yesterday and performed particularly well against USD. A number of factors drove the rally, including increased NAFTA optimism and higher oil prices. US Treasury Secretary Steven Mnuchin made some positive comments during a press conference in Chile about NAFTA and trade in general, stating that the US was not trying to trigger a trade war.

UK news

  • Reuters: May to seek EU condemnation of Russia over nerve agent attack Britain’s Prime Minister Theresa May will seek on Thursday to persuade EU leaders to condemn Russia over what London says was a nerve agent attack in England directed by Moscow but she must overcome resistance within the bloc from Russia’s allies.
  • Reuters: Trump set for China tariff announcement on Thursday, trade war fears grow President Donald Trump will announce tariffs on Chinese imports on Thursday, a White House official said, in a move aimed at curbing theft of U.S. technology and likely to trigger retaliation from Beijing and stoke fears of a global trade war.
  • The Guardian: Federal Reserve raises interest rates again amid ‘strong’ jobs market The Federal Reserve raised interest rates again on Wednesday, arguing that the US jobs market was “strong” and signalled it may accelerate the pace of increases next year. The quarter percentage point rise to a range of 1.5% to 1.75% was the sixth such increase since 2015 and comes as the Fed appears to be moving, slightly, more quickly to end an era of historically low interest rates that began during the last recession.