Morning Report: 23 April 2018

April 23, 2018

GBP. Sterling started last week with post-Referendum highs against USD, only to reverse its momentum and spend the rest of the week heavily on the defensive. Bank of England Governor Mark Carney’s comments about rate hikes was followed on Friday by a speech from the Monetary Policy Committee’s Michael Saunders, who expressed broadly hawkish views on rates and said that policy should tighten at a “gradual, not glacial” pace. This week’s data calendar is off to a slow start for sterling, with CBI Industrial Order Expectations out on Tuesday morning. Friday will see the release of preliminary data for Gross Domestic Product Growth in the first quarter.

USD. The dollar is up this morning, having regained some momentum at the end of last week as crude oil prices and long dated Treasury yields rose in tandem. The weekend’s political news has been largely favourable, with North Korea making conciliatory noises and Treasury Secretary Steve Mnuchin on the wires this morning saying he was optimistic about the chances of a trade deal with China and was considering a trip there. Today at 14:45 BST Services and Manufacturing Purchasing Managers’ Indices will be released by Markit, followed at 15:00 by Existing Home Sales.

EUR. EURUSD headed towards the lower end of its recent trading range on Friday, as the single currency remained out of the spotlight. Survey data will be released this morning in the form of Purchasing Managers Indices for a number of European nations. The week’s main event for the euro will be the European Central Bank’s meeting on Thursday, where Mario Draghi will have to contend with increasingly vocal hawks on the Bank’s Governing Council, such as Ewald Nowotny who was recently willing to explicitly express his belief that the ECB’s asset purchase programme should end this year.

CAD. The loonie pared back its recent gains sharply last week, as the Bank of Canada signalled a cautious pause in rate hikes, and Friday’s data fell well short of expectations. Both Retail Sales and the Consumer Price Index came in below forecast, with Retail Sales changing 0.0% in February after a sharp increase in January. Wholesale Sales data will be released today at 13:30 BST, followed at 20:30 by testimony from Governor Stephen Poloz and his deputy Carolyn Wilkins to lawmakers of the House of Commons Standing Committee on Finance.

UK news

  • Financial Times: Hiring tumbles at UK fund houses as Brexit plans kick in Fund managers have cut the rate at which they are hiring in London by as much as half since the UK voted to leave the EU in June 2016.
  • Reuters: Few Britons expect Bank of England to raise rates next month – survey Expectations among the British public for higher interest rates in the near future cooled in mid-April, even before comments from Bank of England Governor Mark Carney last week muddied the outlook, a survey showed on Monday.
  • Bloomberg: May Faces Cabinet Pressure Over Brexit Customs Union Theresa May is battling to avert a cabinet revolt amid fears from euroskeptic Tories that she’ll break her promise to take the U.K. out of the European Union’s trade regime.

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