Morning Report: 4 May 2018

May 4, 2018

GBP. After briefly stemming its losses on Wednesday sterling was once again on the defensive yesterday, driven by yet more bad data and political drama. Markit’s Services Purchasing Managers’ Index rose to 52.8 for April. The increase was well below forecaster expectations and should be viewed in the context of the last two weeks of data, which have also been well below forecasts. Employment growth slowed to its lowest level since March 2017, while businesses reported slowing growth in new orders.

EUR. The euro continued to struggle against USD yesterday, only closing higher due to opening the day close to three-month lows on EURUSD. Data flow was poor, with the Consumer Price Index printing 1.3% year on year, and Core Inflation, which excluded fuel, falling short of expectations at 0.7% year on year. Despite the recent slowdown in data, the latest economic forecasts from the European Commission maintained an upbeat tone, keeping the overall 2018 forecast at 2.3% growth. Today’s euro data calendar is very busy, with the morning’s releases including Spanish Unemployment, Services Purchasing Managers’ Indices, and Retail Sales at 10:00 BST.

USD. The recent broad rally the dollar experienced seemed to have come to a halt yesterday, with the dollar making losses against the whole G10 board, except sterling which closed just below its opening price. US data released yesterday was mixed. The trade deficit fell for March to $49.0bn, but the Employment Index, a sub-index of ISM Non-manufacturing Index, dropped 3 points to a 12-month low. This is now consistent with payroll growth of just 125k or so in April, and if other sector’s surveys suggest the same, employment growth could be slowing down in the US. Today see’s further US Labour market data, which could shed some light on yesterday’s narrow findings, with Nonfarm Payrolls and the Unemployment rate released at 13:30 BST.

CAD. The loonie showed mixed results from yesterday’s trading, making gains against GBP and USD, whilst trading flat against the euro. However, the Nordic currencies pounced on the loonie yesterday to dampen some of its strength. Canada’s trade balance deficit grew in March to -4.14bn, up from February’s -2.93bn, and came as a shock with the forecast suggesting the deficit will shrink for March. Today sees the release of the Ivey Purchasing Managers Index for April at 15:00 BST which is a good leading indicator of economic health.

UK news

  • Financial Times: Labour fails to make big gains in England local elections. Jeremy Corbyn said he was “disappointed” after his opposition Labour party stumbled in England’s local elections and conceded that it had “lost a bit of ground” in parts of the country.
  • Reuters: Treasury Secretary says having good trade talks in China A U.S. trade delegation in China has been having very good conversations, U.S. Treasury Secretary Steven Mnuchin said on Friday, as he headed into the second and likely last day of talks in Beijing.
  • Wall Street Journal: HSBC Plans $2 Billion Share Buyback as Profit Edges Down. HSBC Holdings said it would buy back another $2 billion in shares but its stock tumbled nearly 3% in Hong Kong after reporting rising costs in the first quarter.

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