Morning Report: 10 March 2017

10th March 2017 By: Ranko Berich

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GBP. Sterling has now ended the trading day lower on eight out of the past eleven trading sessions, and is once more hitting fresh new lows against the euro today. The fall has been driven by a recent run of lacklustre macroeconomic data from the UK, including a slow-down in house price rises, various disappointing Purchase Manager Indices, and a frugal Spring Budget announced earlier this week. Today’s data includes industrial production, manufacturing production and trade balance, all of them to be released at 09.30 GMT. The National Institute of Economic and Social Research (NIESR) GDP estimate is released at 15.00.

EUR. The euro rallied yesterday during the European Central Bank’s press conference, and is holding the gains against both GBP and USD. The ECB’s Governing Council, leaded by Mario Draghi, sent a positive message of satisfaction with the results of the monetary policy programme. Moreover, Mario Draghi also removed a key sentence from the statement: “The ECB will use all instruments available to bring back inflation”, indicating a significantly reduced sense of urgency within the central bank’s Governing Council. Looking ahead, the ECB indicated that the key to see a consistent recovery in inflation will be centred in employment and wage growth. No data will be released today in the Eurozone.

USD. The dollar’s rally appears to be taking a break ahead of today’s Non-Farm payrolls report. US treasuries are on the way for the longest slump since the Watergate scandal. The 10 year yields crossed yesterday above 2.6% after having remained stubbornly below 2.5% for the entire year. The Non-Farm Payrolls report is the last milestone before the interest rate decision in the US next week, and it would have to be catastrophic in order to bring doubts about next week’s interest rate hike, which has already been priced in entirely. Investors and analysts will be looking for signals of further labour market tightening on higher wages, something that could start to point towards the timing of the next hike. The unemployment rate, average hourly earnings and the non-farm employment change will all be released at 13.30 GMT.

CAD. The loonie is one of the main victims of the dollar strength over the last two weeks, falling more than 3.6% since the end of February. The drop in crude oil prices seen this week (around 9.7%), has been critical for CAD, which is currently approaching 1-year lows against the dollar. Employment data is released today in Canada, including the change in employment and the unemployment rate, released at 13.30 GMT.

UK news

FT: Second Scottish independence vote ‘looking inevitable’.  Sturgeon targets late 2018 but Downing St will seek delay until after Brexit. A second Scottish independence referendum is now almost inevitable, with ministers concluding it is a question of when — not if — a vote is called. People close to Theresa May’s office said they expected Nicola Sturgeon, the Scottish first minister, to seek a referendum next autumn, but that the government would fight to delay the vote until after Britain leaves the EU. Although the British government could withhold the legal authority for a vote, it now appears focused on determining the date instead.

Reuters: UK faces tougher Brexit challenge after better 2017. Britain’s economy is likely to feel the pain of Brexit more sharply in the coming years despite holding up well so far, according to Chancellor Philip Hammond’s latest plan to steer the economy through its split from the European Union. Hammond, announcing an annual budget shortly before Britain is due to launch its Brexit divorce process, said the world’s fifth-biggest economy had so far “continued to confound the commentators” by withstanding the referendum shock. The economy is on course to grow by 2.0 percent in 2017, up from a forecast of 1.4 percent made in November, according to official forecasts.