Morning Report: 7 June 2018

June 7, 2018

GBP. Sterling made minor gains against the dollar yesterday in the absence of top-tier data releases. UK media continue their focus on Brexit developments, with today’s news on the division between Theresa May and Brexit Secretary David Davis over plans regarding the Irish border. With May expected to release plans for a “backstop” customs option which was agreed in principle by cabinet last month, Davis voiced his disapproval over no end date being specified in the draft plans. Davis explained that without specifying an end date, that the UK’s relationship with the customs union is not seen as temporary, should a solution other than a hard border not be found. Today at 9:30 sees the Halifax House Price Index as the sole British release of interest for the day.

EUR. Yesterday the euro was up for the third day in a row against USD and continues to trade in the green this morning. Speakers of the European Central Bank can largely be held responsible for yesterday’s rally, as the ECB’s chief economist and one of its main doves, Peter Praet, made some uncharacteristically explicit hawkish statements. He was confident about inflation meeting the ECB’s targets over the medium run, while he also signalled that for the June meeting tapering will formally be discussed for the first time. Unsurprisingly one of the most hawkish members of the Governing Council, Jens Weidmann, appeared to be singing from the same sheet and called the end of the Asset Purchasing Program in 2018 “plausible”. This morning, April German Factory Orders missed the mark by a long shot, contracting 2.5% where a growth of 0.8% was expected. At 10:00 BST the revised Gross Domestic Product for the first quarter will be announced.

USD. The dollar has started on the back foot today after another day of broad losses against G10 currencies yesterday, with the greenback only posting gains against JPY and CHF. The loss of appetite to hold the global currency has shown in fixed income markets as well, with US 10-year treasury yields teetering on breaking the 3% level. However, Treasury yields have started to steady after a global bond selloff was triggered by talk over the time frame in which the ECB would taper its bond purchasing scheme. In anticipation of the G7 summit that will take place tomorrow and Saturday, the White House’s top economic advisor, Larry Kudlow, told reporters yesterday that Trump will be sticking to his tough line on trade policy, stating “there are disagreements. He’s sticking to his guns and is going to talk to them”. Unemployment claims data is released today at 13:30 BST with initial jobless claims expected to marginally decline whilst continuing claims rise.

CAD. The loonie had a brief flash of strength in the afternoon yesterday that proved short-lived, and USDCAD ultimately traded only marginally lower on the day. President Trump reportedly made tongue in cheek comments to Canada’s Prime Minister Justin Trudeau on a phone call, rhetorically asking “didn’t you guys burn down the White House?”- referencing an act during the War of 1812- highlighting continued tensions between the two trade partners. Canada’s Trade Balance was more positive than expected in April, with a deficit of only 1.9 billion, lower than the 3.4 billion expected. Today sees the Bank of Canada Financial System Review at 15:30 BST, followed by BoC Governor Stephen Poloz giving a press conference about this bi-annual publication at 16:15.

UK news

  • Bloomberg: German Factory Orders Extend Slide as Economic Worries Build German factory orders unexpectedly dropped for a fourth month in April, raising the prospect that an economic slowdown at the start of the year may be worsening.
  • Bloomberg: France Warns Trump It Won’t Sign a G-7 Statement France has joined Germany in warning President Donald Trump that it won’t sign a joint statement of the Group of 7 at the summit in Quebec this week without major concessions from the U.S., a French official in the president’s office said.
  • Wall Street Journal: U.S. Trade Is Trump’s Main Focus at G-7 Gathering President Donald Trump, heading into this weekend’s meeting of the Group of Seven industrialized nations, has signalled his intention to continue pursuing an aggressive trade agenda even if it comes at the expense of America’s standing in the world.

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