Morning Report: 27 June 2018

June 27, 2018

GBP. Sterling nearly fell half a percentage point against the dollar yesterday whilst making minor gains against the euro. Most of sterling’s losses came after Jonathan Haskel, the man to replace the hawkish Ian McCafferty in the Monetary Policy Committee, answered questions from the Treasury Committee. With Haskel not explicitly taking a hawkish stance when answering questions, the market digested this as a dovish change in the MPC. Today Mark Carney speaks at 09:30 BST after the release of the half-yearly Financial Stability Report. Markets are expecting some reiteration of the concerns by the Bank of England on Brexit regarding financial stability and reference on Brexit’s impacts on the UK’s derivatives markets. Shortly before midnight last night in Luxembourg, the EU rubber stamped the draft statement for Friday’s EU summit, in which it formally acknowledged no progress has been made in Brexit negotiations. However, with this being common knowledge given the recent Brexit developments, sterling failed to move much overnight.

EUR. Yesterday the euro nearly bottomed the G10 currency board with Angela Merkel not reaching an agreement with her coalition counterpart on migration at a meeting in Berlin and ECB member Ardo Hansson stating policy will remain rather expansionary. This signalled the end of the 3-day EURUSD rally as it hit resistance at the 30-day moving average. Little in the way of data has been released for the Eurozone so far this week ahead of the EU summit that starts tomorrow. The summit will be a key barometer of risk within the Eurozone, as Angela Merkel’s coalition seemingly hangs by a thread as political risk within the trade union is yet to alleviate. Merkel’s coalition partner, the Bavarian CSU party, has demanded that a limit to immigrant flows into Germany once refuge has been sought in neighbouring countries. The topic of migration will be the main talking point at tomorrow’s meeting in Brussels.

USD. In line with the recent trends this year, the dollar again made gains against the whole G10 currency board yesterday. Oil extended its surge after reports that the U.S. has pressed allies to end all crude imports from Iran, OPEC’s third largest oil producer, by November 4th. Trade remained the main topic for financial markets, as President Trump made remarks at the White House that seemed to suggest a softer tone on regulating Chinese investment in the US economy. US Trade Representative Robert Lighthizer in the meantime criticised retaliatory tariffs from US allies against the administration’s steel tariffs. Durable Goods Orders data will be released today at 13:30 BST, accompanied by the Goods Trade Balance.

CAD. The loonie remained under pressure yesterday, as the US dollar made broad advances. Finance Minister Bill Morneau spoke to reporters in Ottowa and said that the Government will be offering support for industries hit by US tariffs and that he hoped NAFTA talks would resume as soon as possible. Stephen Poloz will give a speech on transparency and communication in central banking today at 20:00 BST. Given the market pricing of the probability of a rate hike at the Bank of Canada’s next meeting has fallen from above 70% to the same as a coin clip in recent weeks, the speech will be closely watched.

UK news

  • Financial Times: Donald Trump softens tone on Chinese investments. Donald Trump signalled on Tuesday that he could use an existing national security review system to police China’s investment in key US sectors just a day after markets tumbled on reports he was preparing more stringent restrictions.
  • Wall Street Journal: EU to Begin Retaliatory Tariffs Against U.S. on Friday. The European Union will start imposing retaliatory tariffs on U.S. goods on Friday, in response to President Donald Trump’s duties on steel and aluminum imports from the bloc.
  • Bloomberg: London Is Dragging Down U.K. Productivity, Resolution Says. London is at the heart of the U.K.’s productivity problems, according to the Resolution Foundation. The capital’s productivity has fallen over the last decade by 1 percent, compared to a 1.5 percent improvement at the national level, a report published by the think tank Wednesday said. That’s because the capital’s expansion has been driven by rising employment and hours, rather than efficiency improvements.

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