Morning Report: 11 May 2017

11th May 2017 By: Ranko Berich

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GBP. Despite getting a brief whiff of some fairly significant levels on GBPUSD during a brief burst of strength, sterling ultimately closed flat against the greenback, while remaining similarly stable against the euro. The Royal Institute of Chartered Surveyors latest monthly survey showed a continued decline in sales and new instructions, despite a comfortable balance of surveyors still reporting price increases in their areas. The data suggest that the property market is beginning to cool, even if this has not yet clearly showed up in price data, apart from Halifax’s house price index earlier this week. Monthly Construction, Industrial and Manufacturing output data will be released this morning at 09:30 BSTalongside the Goods Trade Balance, but the day’s most important event for sterling will be the release of the Bank of England’s latest Inflation Report, alongside meeting minutes and a monetary policy decision. Rates are almost certainly likely to remain unchanged, but it’s possible that the number of Monetary Policy Committee members voting for a hike will rise to 2, after Michael Saunders made a rather hawkish speech in April and Kristen Forbes voted for a hike in March. The BoE’s releases are scheduled for 12:00, with a Press Conference following at 12:30.

EUR. EURUSD remained a snooze fest yesterday, trading in a tight range throughout most of the day as the news cycle focussed on political drama in the UK and US and little euro-relevant information emerged. European Central Bank President Mario Draghi did appear before Dutch lawmakers, giving several hours of intense, and occasionally somewhat surreal testimony. Draghi stuck to the ECB’s official line of wanting to wait for clear signs that inflation is improving on a sustainable basis before moving to normalise policy, but was pressed hard by lawmakers on areas such as the financial risks of QE. Draghi at one point raised his voice to lawmakers that seemed to be unaware of the fact the ECB already published meeting minutes. At the end of the session his efforts were rewarded with a tulip in a plastic bubble, as a reminder of the world’s first known speculative bubble and financial crash in 17th century Holland.

USD. USD traded sideways against GBP and EUR with some mild intraday volatility, as markets appeared to shrug off wider implications of the firing of FBI director James Comey for political stability. Monthly Import Price data showed a 0.5% increase, faster than expected and the fifth consecutive month of inflation. Today at 13:30 BST, weekly Unemployment Claims data will be released alongside the Producer Price Index, another important leading measure of consumer price inflation.

CAD. The loonie did rally yesterday, but all of the progress was erased overnight in a dramatic reversal after Moody’s downgraded the credit rating of six large Canadian banks, noting expanding private sector debt and elevated housing prices. Canada’s banking sector emerged through the last financial crisis in relatively good shape, but with Canada now facing high levels of consumer debt to gross domestic product growth and frothy regional housing markets, Moody’s caution is justified. Today at 13:30 BST the New House Price Index will be released.

UK news

FT: Bank of England rate-setters forecast to be more hawkish. Two MPC members thought to have voted for increase at latest meeting. Minutes of the latest meeting of the Bank of England’s rate-setting committee, due to be published on Thursday, could show an increase in the number of members voting for a rise in interest rates. At the previous meeting in March, only one of nine members of the BoE’s Monetary Policy Committee, Kristin Forbes, voted to increase rates. Ms Forbes has tended to be one of the most hawkish MPC members. But as the BoE grapples with the mixed signals sent out by the economy, some analysts have forecast that she could be joined this month by Michael Saunders, who made the case for higher interest rates in a speech to the Federation of Small Businesses (FSB) in London at the end of April.