Morning Report: 25 April 2018

April 25, 2018

GBP. Sterling began to rally yesterday, clawing back some of Monday’s losses against USD. Yesterday’s Government borrowing data from the Office for National Statistics showed that over the 12 months ended March, borrowing had fallen to £42.6bn, meaning that the current budget deficit has been eliminated. The surplus has been primarily driven by relative spending cuts as opposed to tax income increases over the past 5 years. This news is a possible driver for the sterling strength seen in the overnight markets, as it shows the UK government will be less dependent on attracting finance from abroad in order to cover its debt obligations.

USD. The dollar took a breather yesterday after Monday’s rapid gains, only losing out slightly to sterling and euro. US 10 year treasury yields broke through the 3% level this morning as geopolitical tensions eased. This is due to Trump announcing US Treasury Secretary, Steven Mnuchin, will be travelling to China to begin trade negotiations with a delegation of top representatives. The dollar began to strengthen again overnight across the board of G10 currencies off the back of this news. Today, US news will be dominated by coverage of Macron’s visit to Washington, with headlines of his meeting with Trump yesterday suggesting a new Iran deal is on the table. Further pressure on the Iran deal will be added with Germany’s Chancellor, Angela Merkel, expected to arrive in Washington Friday. This marks a significant week for the possible start of geopolitical tensions reversing.

EUR. Euro managed to secure some minor gains against the US dollar yesterday, but came under pressure this morning, trading around yesterday’s opening price. After the Composite Purchasing Manager Index came in stronger than expected on Monday, the German April Ifo Business Climate softened yesterday. The Current Assessment score shrank to 105.7 while the Expectations reading went down to 98.7, signalling the slowdown in growth for the Eurozone may not be over yet. French INSEE Consumer Confidence came in marginally above target this morning at 101.

CAD. CAD traded within a very tight range yesterday against most major currencies, with only the trade on NZDCAD being somewhat lively. Brent crude made new highs above the $75 mark yesterday, signalling the oil bull market for now continues, which in general is supportive for the loonie. However, Trump’s twitter account is developing itself into the prime bringer of doom for CAD. He has recently turned his focus to OPEC’s policies of limiting supply to sustain high oil prices and has hinted at migration policies becoming part of the NAFTA deal as well. Despite Trump’s tendency to flip-flop with his stance on trade and foreign policy, these tweets pose further risk to the loonie and shouldn’t be taken lightly.

UK news

  • Financial Times: UK explores producing own satellite system after EU’s Galileo snub Britain is exploring plans to launch a satellite navigation system as a rival to the EU’s €10bn Galileo project in an escalating row with Brussels over whether the UK can be trusted with Europe’s most sensitive security information after Brexit.
  • Wall Street Journal: Trump Warns Iran on Nuclear Deal, but Signals Openness to Beefed-Up Accord President Donald Trump levelled dire warnings at Iran and signalled an interest in an unspecified new deal to rein in Tehran, echoing a suggestion from French President Emmanuel Macron after the two leaders met Tuesday at the White House.
  • Bloomberg: Credit Suisse Sues to Recoup Part of $4.8 Billion Bank Bonus Tax Credit Suisse Group AG is seeking to reclaim hundreds of millions in taxes from a controversial U.K. bonus levy that hit banker compensation in 2010.

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