Morning Report: 6 June 2018
June 6, 2018
GBP. Sterling rebounded yesterday, as data suggested that the UK economy was rebounding after a slow first quarter. The British Retail Consortium released its latest Retail Sales Monitor, which showed like for like sales rising 2.8% year on year, a reassuring rebound after April’s dire 4.2% contraction. Markit’s Services Purchasing Managers Index also rose faster than expected, reading 54.0 in May. Survey respondents reporting soaring input costs, including wages. Combined with the strong retail sales data, the report will go a long way to reassuring the Monetary Policy Committee that the UK economy remains on track for modest growth and increasing wage pressure. Today at 11:40 GMTthe Bank of England’s Silvana Tenreyro will speak in Belfast. Tenreyro reiterated that the UK can afford to leave interest rates on hold for the time being on Monday.
EUR. EURUSD was down over half a percent mid-way through the trading day yesterday, until European Central Bank Chief Economist, Peter Praet caused a reversal by confirming that next week’s meeting would feature discussions of regarding tapering its current bond-buying programme, which has been a source of downward pressure on the euro for several years now. The single currency posted gains against the dollar by the day’s end, reversing its previous losses in a surge of strength following Praet’s statement. The Eurozone Final Services Purchasing Managers Index fell 0.1 points from its first reading for May to 53.8, showing marginally slower growth in the Eurozone service sector than previously suggested, and Retail sales data showed 0.1% MoM growth in April, a 0.3% reduction from March’s release. Today at 08:30 BST German Construction PMI was released, with a posting of 53.9 for May evidencing an increase in the growth of the German construction industry.
USD. The recent trend of dollar strength seems to be facing a serious challenge this week, with the DXY index continuing Monday’s decline yesterday. This follows positive data coming out of the UK and statements regarding the ECB’s plans to discuss the end of their Asset Purchasing Program, causing the dollar to post losses against both sterling and euro. The US Non-Manufacturing Purchasing Managers Index was released yesterday and showed further positive surprises in US data, with the reading of 58.6 exceeding the median forecast of 57.9. May’s reading showed a near full reversal from April’s previous decline due to the emergence of trade wars. However, beneath the headline figure was some worrying news for the US economy, with the employment index rising by 0.5 points. April’s rise in the employment index is a drop in the ocean as the sub-index fell 3.0 points in April, with the present reading signalling a slowdown in payroll growth in the coming months. Yesterday, White House Economic Advisor, Larry Kudlow, told Fox News that Donald Trump was considering bilateral trade agreements with Canada and Mexico directly, following stalling NAFTA talks. Today at 13:30 BST the US Trade Balance is released, with no expected change at -$49.0bn for April.
CAD. The loonie was solidly on the back foot yesterday, as tensions over trade tariffs remained front of mind for investors, but soon rallied as news emerged that US Treasury Secretary Mnuchin had asked President Trump to exempt Canada from steel tariffs. The news came after suggestions from Trump that the US would seek to have bilateral trade talks with Canada and Mexico, in a potential attempt at a “divide and conquer” strategy. Today at 13:30 BST Trade Balance and Building Permits data will be released.
- Bloomberg: Italy’s New Premier Passes First Hurdle, But Alarms Markets. Italian Prime Minister Giuseppe Conte passed his first parliamentary hurdle, but alarmed markets with a maiden speech pledging a raft of populist measures from boosting spending on the poor and the jobless to sweeping tax cuts.
- Financial Times: Senior ECB officials bolster end of QE expectations. A duo of top European Central Bank policymakers on Wednesday delivered confident remarks on the eurozone economy, bolstering market expectations that the central bank will halt its bond buying scheme this year despite a bout of weak data.
- Wall Street Journal: China Offers to Buy Nearly $70 Billion of U.S. Products to Fend Off Trade Tariffs. China offered to purchase nearly $70 billion of U.S. farm, manufacturing and energy products if the Trump administration abandons threatened tariffs, according to people briefed on the latest negotiations with American trade officials.