Morning Report: 2 March 2017

2nd March 2017 By: Ranko Berich

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GBP.  Sterling again sold off to USD yesterday, but also came under pressure against the euro. Markit’s Manufacturing Services Purchasing Managers’ Index, a survey based measure of output and confidence, fell in its latest reading, while remaining in overall expansionary territory. Bank of England data showed that growth in consumer lending had slowed in the three months to January, despite new mortgage approvals rising. Credit card borrowing led the fall, which nonetheless left consumer up at an annualised 9.6%. Elsewhere the House of Lords voted to amend legislation enabling Theresa May to activate Article 50, adding a clause that requires the government to unilaterally guarantee the right of EU citizens currently in the UK to remain. The Bill will now return to the House of Commons, with the Government’s official plan still being to trigger article 50 this month. Today at 09:30 Construction PMI will be released.

EUR.  The euro is hanging by a thread against USD this morning, after weakening significantly to the greenback over the course of yesterday, and managing a very small rally in the evening that has since almost completely evaporated. French Presidential candidate Francois Fillon said that he would continue campaigning despite being placed under formal investigation for an alleged graft scandal involving his wife. The prospect of another somewhat popular candidate other than Marine Le Pen remaining in the race seemed to give the euro some temporary support yesterday. On the fundamental data front, German inflation accelerated to its fastest rate in four years in February, with annual Consumer Price Index inflation rising to 2.2%. Manufacturing Purchasing Managers Indices for countries across the eurozone remained at high levels for February’s survey. Today at 10:00 GMT the latest eurozone CPI and Unemployment data will be released.

USD.  USD is seeing broad strength for a second consecutive morning, after influential, and previously dovish, Federal Reserve decision maker Lael Brainard said that she believed interest rates could go up soon. Brainard cited full employment, improving inflation, and more solid global growth as factors that suggest the US economy is ready for rate hikes soon. Previously, the Federal Reserve Governor was one of the most vocal critics of hiking rates sooner rather than later, and her statements join a veritable chorus of her voting Federal Open Market Committee colleagues. As if to underline the point, the Personal Consumption Expenditures Price Index, rose to a four year high of 1.9% yesterday. Actual Personal Spending fell slightly short of expectations, while still expanding 0.2%, and personal income rose 0.4% in January. Today at 12:30 GMTChallenger Job Cuts data will be released, followed at 13:30 by weekly Unemployment Claims.

CAD.  The loonie weakened yesterday, as the Bank of Canada kept rates unchanged as expected, but also kept its accompanying statement quite dovish. The statement said that the recent improvement in inflation was probably transitory, and mentioned “persistent economic slack”. Today at 13:£0 GMT the latest Canadian Gross Domestic Product data will be released, and BoC Deputy Governor Timothy Lane will speak at 18:00.

UK news

FT: House of Lords votes to protect rights of EU citizens in the UK. Call for May to ‘think again’ as peers pass amendment to Brexit bill. The House of Lords has voted by an overwhelming majority to guarantee the rights of EU citizens living in the UK after Brexit, in defiance of Theresa May. Peers backed an amendment to the government’s Article 50 Bill — which will give Mrs May the power to trigger the formal Brexit process — by a majority of 102. The amendment requires the government to guarantee unilaterally that EU citizens living in the UK will retain all the rights they currently enjoy once Britain leaves the bloc.

Reuters: UK consumer credit growth slows for a second month, mortgage approvals rise. British consumers borrowed more in January than in December but the pace of the increase slowed for a second month in a row, adding to signs of caution among households as last year’s Brexit vote pushes up inflation. Figures from the Bank of England on Wednesday also showed foreign investors sold British government bonds at the fastest pace in nearly three years. Consumer credit in January rose by 1.416 billion pounds – in line with forecasts in a Reuters poll of economists – and up from an increase of just under 1 billion pounds in December.