Morning Report: 8 March 2018

March 8, 2018

GBP Protectionism concerns eased slightly yesterday, halting sterling’s progress against USD and giving it a modicum of stability against the euro. After many of the core ambitions in Theresa May’s speech on Friday were rejected by Brussels this week, Philip Hammond gave his own speech, in which he warned the UK may reject any trade deal that excludes financial services. Although sterling has had a muted reaction to the latest exchanges of posturing and rhetoric, the stage now seems to be set for a showdown that will finally result in some genuinely new information. No headline sterling data will be released today, aside from the Royal Institute of Chartered Surveyors’ House Price balance, which showed equal numbers of surveyors reporting house price increases and declines.

EUR The euro softened marginally against USD yesterday, ahead of today’s unusually significant European Central Bank rate announcement and press conference. Mario Draghi has a number of themes to grapple with today, but the three most pressing are the revision of forward guidance, how the ECB views recent euro price action, and escalating global rhetoric on trade protectionism. Of particular interest will be how the revision of forward guidance is dealt with, given how sharply the euro rallied earlier this year when the topic was first raised in meeting minutes. The rate announcement is scheduled for 12:45 GMT, followed by a press conference at 13:30 GMT.

USD USD stemmed its losses and rallied yesterday as concerns of protectionism eased. The Trump administration appears to be trying to moderate the tone of its protectionist policies, if not their main thrust this week, with trade advisor Peter Navarro saying that Mexico and Canada would be exempted from steel tariffs – provided a NAFTA deal was struck. Yesterday’s data included an upwards revision to quarterly unit labour costs, and a strong print for ADP’s Non-Farm Payrolls estimate, both of which further confirm the tightness of the US labour market. Today at 13:30 GMT weekly Unemployment Claims will be released.

CAD The loonie had a weak start yesterday, which worsened after the Bank of Canada released its rate statement, before ultimately paring back some losses overnight. Showing a good command of understatement, the BoC mentioned that “trade policy developments are an important and growing source of uncertainty for the global and Canadian outlook”. Reading between the lines it could be argued the BoC may find the economy strong enough to justify rate hikes, but is prevented from doing so by the uncertainty caused by Trump’s tariff threats and the implications this can have for ongoing NAFTA negotiations. Today the BoC remains in the main focus as BoC Governor Stephen Poloz speaks at 16:00 GMT and Deputy Governor Timothy Lane addresses the Vancouver Board of Trade about the March interest rate decision at 20:35 GMT.

UK news

  • Reuters: EU lawmakers tell UK – post-Brexit deal should be about more than trade The European Parliament will call for a broad-based “association agreement” with Britain after Brexit that goes beyond a narrow focus on trade, according to a draft resolution to be voted on next week.
  • Bloomberg: Trump’s Hard-Line Take on Trade Plays Into China’s Hands Now the U.S. is in danger of losing the moral high ground on trade and investment. Daniel Rosenthal, co-chairman of Kroll’s advisory practice on the Committee on Foreign Investment in the U.S. (CFIUS), says the U.S. has been hammering China for years for using national security as a pretext. Says Rosenthal: “We significantly degrade our argument, because now we’re doing what they’re doing.”
  • Reuters: ECB eyes baby step towards stimulus exit The European Central Bank is all but certain to keep policy unchanged on Thursday but may tweak its communication stance to offer at least a few clues about its progress towards ending its unprecedented bond purchases later this year.

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