Morning Report: 27 April 2018

April 27, 2018

GBP. Sterling made broad gains yesterday, despite the EU’s Chief Brexit Negotiator, Michael Barnier, stating that claims “the EU desperately needs the City of London” by Bank of England Governor Mark Carney were false. Today, the focus shifts to UK’s Q1 Gross Domestic Product figures at 9:30 BST, which are expected to maintain YoY growth at 1.4% but slightly dip to 0.3% growth from last quarters growth of 0.4%. However, the figures came in lower than expected at 0.1% QoQ, with construction growth falling and seasonal effects dragging on Q1’s growth. Q1 GDP figures tend to suffer from seaonality biases, and often show dips in growth each year despite statisticians attempts to adjust for winter. Mark Carney speaks at the launch of the Bank of England’s EconME program at 15:00 BST, which aims to provide young people with a greater economic awareness. No valuable information is expected to be released here, but with Carney unexpectedly talking about Monetary Policy in his recent BBC interview, further market moving comments can’t be entirely ruled out.

EUR. Attention switched to the European Central Bank’s Press Conference yesterday after no change in interest rates was announced. The ECB president, Mario Draghi, then took to the stage. He addressed the recent soft growth in Eurozone data as a temporary blip and an understandable correction from previously high levels. Draghi continually stated that growth remained strong and broad-based. Questions around the timing of monetary normalisation were deflected; Draghi said that the ECB’s governing council did not discuss normalisation because they are waiting for the data from the first half of the year. Despite the market implying no rate hike would occur, the euro still took a hit from a less hawkish Draghi than expected. The euro ended up losing out to all G10 currencies except CHF and SEK.

USD. Yesterday was a strong day for USD, with the greenback making gains across the G10 board of currencies, only losing out to JPY. Initial Jobless Claims and Continuing Claims came in below expectations yesterday afternoon, showing further tightening of the US labour market. This continues the ongoing theme of positive surprises in US data. Should Q1 GDP figures, released at 13:30 BST today, overshoot the survey consensus of 2%, a fourth rate hike this year by the Fed will be increasingly likely. Along with the release of GDP figures comes core Personal Consumption Expenditure data for Q1, which is forecast to show a rise in inflation for Q1 2019 to 2.5%. The dollar has the potential to continue this week’s trend of strength with a sharp surge today should these figures add weight to a fourth rate hike. With regards to politics, German Chancellor, Angela Merkel arrives in Washington today in a last-ditch effort to persuade Donald Trump to extend the pre-existing nuclear deal with Iran. This comes following French President, Emmanuel Macron, publically suggesting Trump will likely scrap Iran deal on Wednesday.

CAD. The loonie had a fairly mixed day yesterday, making minor concessions to USD and JPY. Canadian headlines focused on Foreign Affairs Minister, Chrystia Freeland, skipping a summit in Brussels to continue discussions on a new NAFTA deal in Washington yesterday. Top Mexican officials said that a deal is close at hand but the push to the finish line is hard.

UK news

  • Financial Times: North and South Korean leaders meet in historic summit North Korean leader Kim Jong Un smiled and shook hands with South Korea’s president Moon Jae-in on Friday after walking across the military demarcation line dividing the two nations, commencing a summit aimed at ending decades of conflict on the peninsula.
  • Reuters: UK growth slows to weakest since 2012, weather only partly to blame  Britain’s economy slowed much more sharply than expected in the first three months of 2018, with heavy snow only partly to blame, raising major questions over whether the Bank of England will raise rates next month.
  • Bloomberg: EU to City of London: Expect No Brexit Favors, We Don’t Need You The European Union’s Brexit negotiator said U.K. banks will face similar restrictions to U.S. institutions after the divorce and issued a stark warning that markets should prepare for a messy, no-deal breakup.

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