Morning Report: 9 March 2018

March 9, 2018

GBP Sterling fell back against USD like most other major currencies yesterday, but managed to hold its ground against the euro, despite a sharp wobble in the afternoon. Various Brexit narratives vied for news attention, but no truly new information emerged and sterling was unaffected. The sterling data calendar is substantially more eventful today than yesterday, with Manufacturing and Construction output released alongside the Goods Trade Balance at 09:30 GMT. Consumer Inflation Expectations will also be released by the Bank of England at this time.

EUR Markets bought in to the euro in the immediate aftermath of the European Central Bank revising its forward guidance yesterday, but quickly sold off again as it became clear that the changes were largely cosmetic. The main change that caught the markets eye was the fact that the ECB removed a commitment from its post-meeting statement to increase the size of its monthly bond purchases, should the economic outlook deteriorate. This is a commitment that had stood since 2016, and was introduced to reassure markets that it would quickly ease monetary policy further in the event of an economic or financial deterioration. The fact that the economic outlook for the Eurozone has improved enough that the ECB no longer feel it needs to include this statement appears to be a nod to the the hawks on the Governing Council, who have argued that policy has been overly accommodative for a long while. Nonetheless, the crux of ECB policy remains that until inflation shows a convincing improvement, the ECB will continue to throw ample monetary accommodation at Eurozone. Little can be gleaned of the odds of a taper in September, but once again FX got an explicit mention as a downside risk.

USD USD had a splendid day against virtually the entire G10 after President Trump signed an order for the steel and aluminium tariffs, but inserted some caveats that mitigate worries about a trade war slightly. He exempted Canada and Mexico from the steel and aluminium tariffs and also included a period of “at least 15 days” in which countries could lobby for a better deal. The exemptions however are not completely unconditional. For Canada and Mexico they are only enforced if a new NAFTA agreement will be struck and other countries need to prove the tariffs hurt their national security. Today at 13:30 Average Hourly Earnings, Unemployment Rate and Non-Farm Employment Change are made public, which gives us a broad and deep update of the US labour market.

CAD The loonie had some minor wobbles throughout the day against USD, but eventually closed approximately flat on the cross. CAD found some reprieve later in the session after president Trump signed an order to exclude Canada and Mexico from the steel and aluminium tariffs. Canadian Building Permits for January outperformed the expectations and showed a firm monthly growth of 5.6%, while the National House Price Index was soft and remained flat in January. This afternoon at 13:30 GMT Employment Change and Unemployment Rate will be announced.

UK news

  • BBC: Trump and North Korea’s Kim Jong-un to hold ‘milestone’ meeting North Korean leader Kim Jong-un and US President Donald Trump are to meet in person by May, it has been announced, an extraordinary overture after months of mutual hostility. News of the meeting was delivered by South Korean officials after talks with Mr Trump at the White House. They passed a verbal message from Mr Kim, saying the North Korean leader was “committed to denuclearisation”. Mr Trump hailed “great progress” but said sanctions would remain in place.
  • BBC: UK to seek exemption from US steel tariffs The UK will seek an exemption from President Donald Trump’s tariffs on steel and aluminium imports to the US, according to Trade Secretary Liam Fox. Mr Fox says he will travel to Washington next week when he will discuss the new duties.
  • Reuters: Asia’s biggest exporters bristle over U.S. tariffs, fanning trade war fears Major Asian nations reacted sharply on Friday to U.S. President Donald Trump’s decision to impose tariffs on steel and aluminum imports, warning of damage to relations amid industry calls for retaliation. Japan said the move would have a “big impact” on the countries’ close bilateral ties, while China said it was “resolutely opposed” to the decision and South Korea said it may file a complaint to the World Trade Organization.

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