Morning Report: 30 January 2018

January 30, 2018

GBP Sterling continued to sell off yesterday, as the global bond market rout deepened and USD benefited, while political dramas continued. David Davis and Michel Barnier traded indirect barbs over the length and nature of the Brexit transition period, while internecine fighting continued among the Conservative Party. This has seen the leak of impact reports on various Brexit scenarios by the Treasury. The reports are consistent with mainstream economic analysis and suggest worsening consequences for growth in the long run depending on how much single market access is lost. This morning’s main release will be Money and Credit figures from the Bank of England, and Mark Carney will testify to the House of Lords Economic Affairs Committee at 15:00 GMT.

EUR The euro was on the back foot against USD this morning, but has popped higher on slightly firmer than expected German regional inflation data. Data and more ECB chatter are the morning’s themes for the single currency, with French Consumer Spending contracting in December after a spike in November, while Spanish GDP rose 0.7% in Q4. German Consumer Price Index inflation will be released on a regional basis throughout the morning, culminating in the nationwide release at 13:00 GMT.

USD Higher bond yields have lifted USD this week, as markets ponder the prospect of upside risk to rates and inflation in the world’s largest economy. Some data will be released in the afternoon, but by far the day’s most significant event for USD will be Donald Trump’s first State of the Union Address at 14:00 GMT. Two themes will be highly relevant for USD and markets: infrastructure spending and protectionism. Donors to Trump’s campaign fund can look forward to seeing their names appear on an official livestream. The Case-Shiller House Price Index will be released at 15:00.

CAD No Canadian data was released yesterday, and the loonie followed other major currencies lower against USD. The drought of CAD data will continue today, although Donald Trump’s State of the Union address is an opportunity for the US President to make remarks about trade that could prove relevant for NAFTA negotiations.

UK news

  • Reuters: Britain will be worse off in every Brexit scenario, government analysis says. LONDON (Reuters) – Britain will be worse off after Brexit in every scenario examined, according to an analysis compiled by British officials, BuzzFeed News reported on Monday. Britain is due to exit the EU on March 29, 2019, but there are deep divisions inside Prime Minister Theresa May’s government and party about what sort of relationship should replace 46 years of membership.
  • Reuters: EU offers Brexit transition, but UK must ‘accept rules’. The European Union offered on Monday to let Britain keep its membership benefits for 21 months after Brexit to help businesses adapt but it rejected the idea that London could block new EU laws during the transition.
  • Telegraph: Leaked Brexit economic impact report attacked as ‘highly suspicious’ by furious Eurosceptic MPs. Eurosceptic MPs have called for a leaked Brexit economic impact assessment to be “pushed to one side” because it is “highly speculative” and the timing of its emergence is “highly suspicious” . Leading Brexiteers have dismissed the report and said it should be taken “with a pinch of salt” because such forecasts have proven to be inaccurate in the past.

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