Morning Report: 31 January 2018

January 31, 2018

GBP Sterling rallied against both USD and EUR yesterday, shrugging off the latest political infighting after Mark Carney gave a reasonably hawkish assessment of monetary policy prospects in testimony to lawmakers. Speaking to the House of Lords economic affairs committee, Carney called for the Retail Price Index, a statistical relic that has been widely criticised for exaggerating price pressure, to be retired from use as a benchmark. Carney also made some fairly optimistic statements about the UK economy, while defending the Bank of England’s approach to forecasting and policy. Overnight the GfK Consumer Confidence index was released, showing a slight improvement in optimism, while the British Retail Consortium’s Shop Price Index showed prices in the tracked stores falling 0.5% year on year.

EUR The euro was out of the spotlight somewhat yesterday, but it did make some progress in the morning as fixed income continued to sell off in placed. Despite regional German CPI data being a mixed bag, the nationwide index fell 0.7% in January. Elsewhere France’s GDP grew by slightly more than expected in the fourth quarter of 2017, almost equalling the rapid 0.7% quarterly growth seen in Spain. The flash estimate of eurozone growth in the quarter was an impressive 0.6%. Today at 10:00 GMT monthly eurozone inflation figures will be released.

USD USD weakened overnight as Donald Trump’s State of the Union address was characteristically light on policy detail. In addition to his usual policy talking points such as immigration, Trump lauded the economic progress of the US under his presidency, although it could be accurately described as a continuation of the growth trends seen over the past several years – in fact, job creation actually slowed slightly in 2017 compared to 2016. Some references to infrastructure spending were there, but no detail on how a spending programme would be funded. Today is likely to be at least as significant, if not more so, for USD, with the the ADP estimate of non-farm payroll growth due for release at 13:15 GMT, followed by Pending Home Sales at 15:00. Later in the evening, the Federal Reserve’s latest rate decision will be announced, accompanied by a potentially revised statement.

CAD The loonie traded flat against USD yesterday, but has strengthened overnight as Trump’s State of the Union speech saw broad USD weakness. No news was good news for NAFTA talks last night, as the speech did not see much of Trump’s trademark rhetoric about leaving the agreement. Today at 13:30 GMT monthly Canadian Gross domestic Product data will be released.

UK news

  • Reuters: May says will give parliament ‘appropriate analysis’ before Brexit deal vote.  British Prime Minister Theresa May said on Wednesday that lawmakers would be given official analysis on any Brexit deal before they are asked to approve it, dismissing a leaked document showing the economy would be worse off under all exit scenarios.
  • Telegraph: Theresa May says ‘I won’t quit’ – but is it really her call? Unfortunately for Mrs May, it’s clear that she is not an all-powerful leader able to reign over her party for the next decade.

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