Morning Report: 23 February 2017

23rd February 2017 By: Ranko Berich

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GBP.  The flat short term trend on GBPUSD appears very much intact today, after yesterday’s furtive rally in sterling quickly fell to pieces in the afternoon. UK Gross Domestic Product was revised upwards in the second release of fourth quarter data, with growth now reckoned at 0.7% quarter on quarter. Household spending was once again the primary driving force of the improvement, although manufacturing output also contributed, especially to the upwards revision. Business Investment was a net drag, although this may have been affected by sales of gold. Strong GDP performance in Q4 2016 is ultimately old news for sterling; concerns about the future after a recent deterioration retail sales are likely to outweigh rosy Q4 GDP data. No major UK data will be released today.

EUR.  After at first falling through support levels on EURUSD to reach its lowest level since early January against USD, the euro found some strength later during yesterday’s session and managed to recover somewhat. The move came after French Politician Francois Bayrou withdrew from the Presidential race and declared support for Emmanuel Macron. The move caused a rally in French government bonds and other assets. Mainstream candidates in the race are widely expected to attempt to consolidate support behind one candidate further, as the French electoral system encourages, and polling indicates that such a development will ultimately prevent Eurosceptic Marine Le Pen from winning the Presidency. The eurozone Consumer Price Index remained unchanged at 1.8% year on year inflation. This morning’s main data releases have been an unchanged German GDP revision and GfK Consumer Climate survey data, which showed a slight decay in survey optimism.

USD.  USD was again showing broad strength yesterday, but ultimately pared its gains after the Fed’s latest meeting minutes, unsurprisingly, did not contain much new information. The key message of the minutes was that the consensus of the rate setting Federal Open Market Committee was that rates would rise “fairly soon”, as has been signalled previously by Fed speakers. The Fed’s next meeting is on March 14-15, and of course the minutes contained no clear indication of where consensus opinion is for a hike at this meeting, which has been described as “live” by Fed policy makers. Donald Trump’s speech to both houses of lawmakers next Tuesday may end up being the quarter’s seminal event for USD, with monetary policy being priced fairly consistent to Fed messaging by markets. Today at 13:30 GMT weekly Unemployment Claims will be released, followed at 14:00 by the House Price Index.

CAD.  Loonie trading followed a familiar pattern for watchers of G10 currencies yesterday, at first weakening to USD before rallying in the afternoon through to this morning. Canadian Retail Sales fell short of expectations in yesterday’s release, with headline sales falling 0.5% in December after last month’s 0.3% expansion. Today at 13:30 GMT Corporate Profits data will be released, and official Crude Oil Inventory Data will also be worth watching at 16:00 GMT.

UK news

FT: Fed flags interest rate rise ‘fairly soon’ Central bank caution over anticipating White House economic policy. Many of the Federal Reserve’s policymakers said they should be ready to lift short-term interest rates again “fairly soon”, minutes from the last meeting revealed, setting the stage for intense debate at the next gathering as the US economy strengthens. Minutes from the Fed’s meeting at the end of January, at which it held rates unchanged, reflect significant uncertainty on the impact of potential tax cuts and other White House economic policies, with participants admitting it would be “some time” before the outlook became clearer.

Reuters: Experts must admit uncertainty to regain trust, says top BoE official.  Economic experts, maligned in an age of populist movements and fake news, must come clean when they are uncertain about the future if they are to regain the trust of the public, Bank of England Deputy Governor Minouche Shafik said on Wednesday. Her comments reflect a bout of soul-searching among BoE policymakers, who have been criticised by Brexit supporters for warning that a vote to leave the European Union could lead to a sharp slowdown – something that has not yet materialised. Shafik said confidence in experts was at an all-time low.