Morning Report: 23 March 2018

March 23, 2018

GBP Sterling briefly surged in the aftermath of yesterday’s 7-2 vote to keep rates unchanged from the Bank of England, but ultimately closed lower against USD and flat against the euro, after the detail of the policy statement and meeting minutes made clear that the BoE had not changed the outlook for policy in any way whatsoever since its last meeting. The overall message appeared to be that the BoE was still on track to hike in May, and had kept faith with its optimistic forecasts for wage growth and investment. Earlier in the morning, ONS data showed UK Retail Sales Including Autos were up 0.6% in February vs 0.4% forecast. January’s growth was revised down from 0.1% to -0.2%. The big downwards revisions took the shine off the nice headline figure for markets, and the data did not include the “beast from the east” snowstorm that is likely to weigh on March’s report. The Bank of England’s Quarterly Bulletin will be released today at 12:00 GMT, and the Monetary Policy Committee’s Gertjan Vlieghe will speak at 12:30.

USD Protectionism and politics were the dominant topics for USD yesterday and overnight, as the greenback was up or flat against most of the G10 currencies, with safe havens JPY and CHF the only notable winners. The Trump administration announced plans for tariffs on up to $60bn on imports from China, with the President himself saying that more action was likely. Global equities sold off on the news, as fears of a trade war between the world’s two most important economies intensified after Chinese officials warned of retaliation. Yesterday’s data was something of a side show by comparison, but weekly Unemployment Claims were once again extraordinarily low at just 229,000. Today at 13:30 GMT Durable Goods Orders will be released.

EUR The euro performed reasonably well yesterday, trading flat against GBP and USD, despite some poor data in the morning. Services and Manufacturing Purchasing Managers’ Indices from Markit fell well short of expectations, indicating a slower rate of economic growth in the first quarter, although the eurozone’s Current Account surplus swelled to more than 37bn in January on soaring services exports.

CAD The loonie was not entirely immune to yesterday’s US trade drama, and pared back some of its gains from Wednesday. Today will see some top shelf data releases in the afternoon, with Retail Sales and the Consumer Price Index due for released at 12:30 GMT. Core Retail Sales contracted 1.8% in December, so a substantial rebound is expected.

UK news

  • Reuters: China urges U.S. away from ‘brink’ as Trump picks trade weapons. China urged the United States on Friday to “pull back from the brink” as President Donald Trump’s plans for tariffs on up to $60 billion (42.5 billion pounds) in Chinese goods moved the world’s two largest economies closer to a trade war.
  • Reuters: EU leaders confirm Brexit transition offer, joint trade line. European Union leaders formally adopted on Friday their joint negotiating stance on a future trade relationship with Britain after it leaves the bloc, said the chairman of the summit, Donald Tusk. That comes together with an offer of a 21-month transition period to help business adapt after Brexit, due in March 2019.
  • Bloomberg: Stocks Extend Slump on Trade Fears; Gold, Yen Rise.  Stock declines deepened globally on Friday, with European equities sliding to the lowest in more than a year and gauges tumbling across Asia as the negative news cycle for risk assets continued.

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