Morning Report: 8 May 2018

May 8, 2018

GBP. Prior to the bank holiday weekend, GBPUSD continued to fall, even testing its 200 moving day-average. However, this morning it looks to have bounced, though, in the absence of any fresh positive economic news from the UK, it’s unlikely to be long before it returns under pressure. Indeed, last week sterling was the biggest loser of all G10 currencies against USD. Despite a glimmer of hope in the form of Construction Purchasing Manager Index data coming in above expectations, negative surprises in Services and Manufacturing PMI worsened sterling’s losses. This week the UK data calendar starts off slow, with Thursday holding the highly talked about Bank of England Policy decision and Inflation Report at 12:00 BST, with Manufacturing data also released at 9:30 BST.

EUR. Euro set fresh 2018 lows against the dollar yesterday while it got pounded by virtually the entire G10 currency board. Tensions in Italian coalition talks have been building for a while and seemed to have reached a new climax yesterday. The leaders of the two biggest parties, the Five Star Movement and the Lega, signalled they do not have any faith in a “neutral”, broad government, which they fear will be filled by technocrats. The refusal of the two leaders to hold on to this last straw for the coalition talks implies new elections may happen as soon as July, putting political uncertainty back on the agenda. Today March German Industrial Production grew by 1.0%, compensating somewhat for the 1.6% decline in February, while Germany’s Trade Balance also performed better than expected in March.

USD. Last week saw another week of broad strength for the greenback, making gains against all G10 currencies, with JPY losing out the least. Friday saw the release of further US labour market data, this time in the form of Nonfarm Payrolls. NFP increased, albeit at a slower than expected rate, enough to push US unemployment under 4% for the first time since December 2000. However, this didn’t filter into Average Hourly Earnings, which grew by 0.1%, the lowest rate of growth since 2012. The moderation in both job and wage growth may relieve the Fed from some pressure over a 4th rate hike this year. Today sees Donald Trump take the stage at 19:00 BST where he will announce his decision on the nuclear deal with Iran. The Producer Price Index is released on Wednesday, with Consumer Price Index released on Thursday.

CAD. The loonie held its ground last week, sustaining losses only against the dollar. Tensions around the Iran nuclear deal pushed West Texas Intermediate above $70 a barrel for the first time since late 2014. A termination of this deal will limit Iran’s access to global oil markets and may further drive up oil prices, with higher oil prices broadly seen as CAD positive. Building Permit data is released at 13:30 BST on Tuesday, with Unemployment data released at 13:30 BST on Friday.

UK news

  • Financial Times: Falling money supply points to slower economic growth If the amount of money people have in their bank accounts is an indicator of future spending, the UK economy is in for an extended rocky patch, monetary economists have cautioned.
  • Wall Street Journal: Trump to Make Announcement on Iran Nuclear Deal Tuesday Washington’s European allies were bracing for the U.S. to withdraw from the Iran nuclear accord after President Donald Trump said he would announce on Tuesday his decision on the landmark agreement that he has repeatedly condemned.
  • Reuters: Japan’s Takeda agrees 45.3 billion pounds takeover of Shire Takeda Pharmaceutical (4502.T) agreed to buy London-listed Shire (SHP.L) for 45.3 billion pounds on Tuesday after the Japanese company raised the amount of cash in its offer to $30.33 to secure a recommendation.

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