Morning Report: 10 February 2017

10th February 2017 By: Ranko Berich

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GBP.  Sterling had a turbulent day yesterday, initially enjoying a boost against USD in the morning, but it quickly reversed and turned into a retreat in the afternoon on the back of comments from President Donald Trump. After a relatively slow week for fundamental data, Industrial and Manufacturing Production will be released this morning, alongside the Goods Trade Balance and Construction Output. Industrial production and Manufacturing Production both saw sharp expansions last year, consistent with the dramatic improvement in survey data from the sector, and the growth is expected to moderate somewhat in today’s release, which will be for December’s data. At 15:00 GMT the NIESR estimate of Gross Domestic Product growth over the three months ended January will be released.

EUR.  The euro weakened yesterday, heading towards the bottom of this week’s trading range against the US dollar. The Greek debt crisis was once again in headlines, with spreads between Greek sovereign debt and other eurozone countries once again showing investor caution. German Finance Minister Wolfgang Schäuble reiterated previous statements calling for Greece to reform or leave the eurozone. Reports circulated that Greece’s creditors would prepare a new series of proposed austerity measures for presentation today, meaning the February 20th meeting of eurozone finance ministers could see a possible resolution, or escalation, of this latest stage in the ongoing drama.

USD.  USD seemed to be on the back foot yesterday, but reversed quickly and went on the offensive in the afternoon after President Trump said that he would be announcing major tax changes within two or three weeks. The mere hint of fiscal stimulus, and the associated inflation, was enough to reignite dollar long bets. Weekly Unemployment Claims were once again exceptionally low at just 234,000, indicating the inflationary potential of fiscal easing during a tight labour market. The Federal Open Market Committee’s Charles Evans became the latest Fed policy maker to express support for around three rate hikes this year, the consensus view. Today will be a slow day for the US data calendar, with only Inflation Expectations and Consumer Sentiment surveys due from the University of Michigan at 15:00 GMT.

CAD.  Despite some intraday volatility USDCAD close flat yesterday. Canada’s New House Price Index grew 0.1% in December, and the Bank of Canada’s Lawrence Schembri did not directly discuss the outlook for monetary policy in his speech on inflation, although he did express support for the current level of rates. Today at 13:30 GMT Unemployment data will be released.

UK news

Le Pen debt plan threatens massive default, say agencies French far-right leader’s promise to ditch euro unsettles investors. Around €1.7tn of French public debt could eventually be redenominated into francs if the far-right National Front party gets into power, according to party officials, in what would according to ratings agencies amount to the world’s largest ever sovereign default. While polls suggest the National Front leader Marine Le Pen will come second in the election in May, investors have been pricing in the increased risk of an FN victory as her main rival on the centre-right François Fillon is weakened by a scandal about jobs for his wife and children. In comments that are likely to amplify fears about the impact of a FN victory on the global financial system, several senior-ranking party members have told the FT that in power the far-right would seek to redenominate around 80 per cent of the France’s €2.1tn public debt — the part that was issued under French law — in a new national currency.

The fight starts now? Corbyn criticised after Brexit battle cry – Reuters Labour leader Jeremy Corbyn was publicly lambasted by Scottish First Minister Nicola Sturgeon after declaring that his fight over the government’s Brexit plan “starts now”, shortly after he voted in favour of triggering Britain’s EU exit. Deep divisions have emerged within Corbyn’s Labour Party over whether they should support the government’s plan to trigger Brexit by the end of next month and pursue a clean break with the EU, or block the plan and fight for a softer Brexit. Those differences came to a head late on Wednesday when 52 of Corbyn’s 229 MPs defied his instruction that they should back the government. The government comfortably won approval for a law giving Conservative Prime Minister Theresa May the power to start the legal exit process. “Real fight starts now,” Corbyn tweeted after the vote. “Over next two years Labour will use every opportunity to ensure Brexit protects jobs, living standards & the economy.”