Morning Report: 03 March 2017

3rd March 2017 By: Ranko Berich

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GBP.  Sterling was yet another victim of yesterday’s broad dollar strength and sold off further against the greenback, while a small rally against the euro in the early afternoon quickly disappeared. Theresa May announced that she would seek to reverse the recent House of Lords amendment added to the legislation enabling her to activate article 50, with the intention of ultimately passing the bill into law unamended. Although May has a majority in the Commons, the prospect of a rebellion by lawmakers is not so remote that it can be entirely ruled out. Yesterday the Markit Construction Purchasing Managers Index rose slightly to 52.5, while increases in input costs remained at a more than eight year high. Today at 09:30 GMT the Services Purchasing Managers’ Index will be released.

EUR.  After reaching a fresh two month low against the dollar late last night, the euro has managed to claw back a modicum of its losses this morning. Yesterday’s data was actually fairly decent, with the Flash Estimate of Eurozone Consumer Price Index inflation showing 2.0% year on year inflation. The Core CPI was up 0.9%, practically unchanged since 2014. Producer prices, in the meantime, continued their meteoric rise, and were up 0.7% month on month in January, suggesting eventually the upwards pressure will filter through even further to consumer prices. German Retail Sales data has been released this morning well short of expectations, contracting 0.8% in January. Spanish, Italian, French, and German Services Purchasing Managers Indices will be released from 08:15 GMT onwards, culminating in eurozone wide PMI at 09:30. Eurozone Retail Sales will be out at 10:00.

USD.  This week’s broad dollar strength has, arguably, been driven not by political rhetoric from Donald Trump, but higher rate rhetoric from Federal Reserve policy makers. After hawkish speeches and interviews from Williams, Dudley, Brainard and Powell, market-implied probabilities for a rate hike at the Fed’s March 15th meeting have skyrocketed above 90%. This indicates overwhelming expectations of a hike, but also creates the possibility of a sharp selloff in the event of adverse developments. No less than four members of the Federal Open Markets Committee will speak today, including Evans at 15:15 GMT, Powell at 15:15, Chair Yellen herself at 18:00, concurrently with another speech by Vice Chair Stanley Fischer. Fischer and Yellen are the Fed’s two highest ranking officials, and have been quiet amid the Fed’s latest talking offensive, meaning their speeches will receive all the more attention from those looking to confirm or challenge this week’s USD strength. Markit Services Purchasing Managers Index data will be released at 14:45, followed by the ISM Non-Manufacturing PMI will be released at 15:00.

CAD.  The loonie saw another day of heavy losses, as rising crude inventories, a dovish Bank of Canada, and broad USD strength have proven to be powerful ingredients for CAD weakness this week. Yesterday’s data included monthly Gross Domestic Product data on expectations at 0.3% month on month in December, with a nice upwards revision to November’s figures. No data will be released today.

UK news

MPs attack May industrial strategy for lack of detail Worries over challenges of Brexit add urgency to calls for policy framework. Theresa May’s industrial strategy is facing more criticism, with MPs pointing to a lack of detail co-ordinated action and proper planning. In a report published on Friday, the business, energy and industrial strategy committee said the prime minister’s approach appeared on the surface to be a “significant shift” from decades of orthodoxy. But so far, it argued, ministers had produced little evidence of a long-term strategy.

Reuters: Higher spending unlikely in Britain’s budget despite better finances Chancellor Philip Hammond will probably have some rare good news about the country’s weak public finances when he delivers his first full budget plan next week, but he is unlikely to bow to demands for higher spending. The economy has started to show some signs of slowing. And the real challenge of leaving the European Union is about to begin with the divorce negotiations due to start this month.