Morning Report: 28 February 2018

February 28, 2018

GBP Broad dollar strength took hold of fx markets yesterday, and sterling fell back against USD. The usual Brexit posturing and noise making continued on all sides, as the Financial Times reports this morning that Chief EU negotiator Michel Barnier said that talks were in a form of stagnation and that David Davis was not spending enough time negotiating. For his part Davis appears to be maintaining a strategy of direct appeals to EU member nations, and is touring Nordic nations this week.

EUR Euro hit a three week low yesterday against dollar, while the picture against the rest of the G10 was more mixed. German Preliminary Consumer Price Index for February came in at expectations at 0.5%, while the Spanish equivalent was stronger than previously considered at +1.1%. Today at 10:00 GMT the equivalent figure for the entire Eurozone will be released.

USD The dollar enjoyed a boost yesterday as New Federal Reserve Chairman Jerome Powell testified to lawmakers from the House Financial Services Committee. Powell largely stuck to Janet Yellen’s approach of cautious hawkishness and studious avoidance of political commentary. Although he gave no suggestion of a fundamental change in the Fed’s approach to monetary policy, in responding to questions Powell did acknowledge that recent data had further bolstered the case for near term rate hikes, and in doing so gave USD a jump start for the week. Yesterday’s USD data was inconsequential due to Powell’s testimony, but included a big contraction in Core Durable Goods orders, and a substantial increase in the CB Consumer Optimism index. Revised Gross Domestic Product data for the fourth quarter will be released today at 13:30 GMT, and will be followed by the Chicago Federal Reserve’s Purchasing Managers’ Index at 14:45 and Pending Home Sales at 15:00.

CAD The loonie was among the victims of the vigorous US dollar, though in all honesty, it has to be mentioned that CAD’s performance against other G10 currencies was not much more convincing. Canada’s Annual Federal Budget was released yesterday, reaffirming that Canada’s fiscal policies will be rather expansionary in the coming year as well. The strong economic performance nevertheless helped to reduce the government deficit. Today at 13:30 GMT Price Index for raw materials purchased by manufacturers is released, while also the annual budget will further be digested by markets today.

UK news

  • Financial Times: Barnier expresses frustration with Davis over Brexit talks. The EU’s top Brexit negotiator has hit out at David Davis, his British counterpart, for avoiding talks in Brussels, in a sign of frustration over what the EU sees as Britain’s failure to hammer out compromises with the bloc. With little more than three weeks to go before the UK wants to conclude an important transition deal, Michel Barnier told EU27 ministers in Brussels that the talks were “in a form of stagnation”, which he linked to Mr Davis’s absence from Brussels.
  • Financial Times: Jared Kushner loses top-level US security clearance, reports say. Jared Kushner has lost his top-level security clearance, according to US media reports, dealing a blow to the White House as it struggles with claims of intelligence leaks, unruliness and wavering foreign policy. The decision would prevent Donald Trump’s son-in-law and adviser from seeing the presidential daily brief and attending other high-level meetings. Several other officials granted only interim clearance have also had their access downgraded.
  • Yahoo Finance: Fed’s Powell knocks stocks, signals rate hikes coming.

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