Morning Report: 23 March 2017

23rd March 2017 By: Ranko Berich

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GBP.  Sterling shrugged off the initial shock in financial markets’ as reports of yesterday’s terror attack outside Westminster Parliament in London hit the headlines, with sterling up this morning against all G10 currencies at the time of writing. This morning, sterling has jumped through technical resistance levels as retail sales data smashed expectations, reinforcing sterling’s recent rally. Markets are keen to see strong economic data to support the increasing likelihood of higher rates later this year.

EUR.  The euro advance against the US dollar remains capped by strong resistance and GBPEUR is rising on sterling’s strength this week, amid a lack of relevant data in the single currency area. Today is another slow day in the eurozone’s economic agenda, and the euro will remain out of the spotlight. Danièle Nouy, from the ECB, indicated earlier today that “some euro zone banks may need to be unwound if they become unviable”, just as the Italian government seeks to bail out two regional lenders. No data is expected today.

USD.  The dollar has strengthened against the majors overnight as Treasury yields snapped a 4-day decline ahead of tonight’s critical test for the Trump Administration. President Trump is facing strong opposition from both the Democratic and Conservative parties ahead of tonight’s critical vote on the healthcare reform tonight at the US Congress. The healthcare reform is vital to Trump’s economic agenda, as the US President would not be able to deliver “massive tax cuts” without scrapping Obamacare. Markets have already anticipated aggressive fiscal stimulus by the Trump Administration, and if the vote tonight does not pass the bill, any sort of fiscal expansion will be, in the best case scenario, delayed significantly. Fed’s Chair, Janet Yellen, speaks at 12.45 GMT, Due to deliver opening remarks at the Federal Reserve System Community Development Research Conference, in Washington DC.

CAD. The loonie is weakening again this morning after a rally during today’s afternoon and evening. Justin Trudeau, Canada’s Prime Minister, presented yesterday the annual budget. The PM picked six sectors to bolster innovation and job creating, led by clean tech, agri-food, digital, advanced manufacturing, bio-sciences and clean resources. Amid a lack of economic releases in Canada today, trading trends in the CAD are expected to be determined by global macroeconomic events.

UK news

FT: Barnier warns UK of queues and shortages if Brexit talks fail. EU negotiator lays out the consequences of failing to reach a deal. Britain will face nuclear fuel shortages, truck queues at Dover and “serious disruption” to air traffic if Brexit talks fail, the EU’s chief negotiator has warned as he outlined conditions for an “ambitious” UK-EU trade deal. In a wide-ranging speech ahead of Article 50 exit talks, Michel Barnier warned Britain it must agree “principles for an orderly withdrawal” before trade talks, including its financial dues and the rights of 4m UK and EU migrants. Speaking shortly after reports of a shooting incident at the British parliament, Mr Barnier expressed his “solidarity” with the UK over the “serious events unfolding in London”.

Reuters: UK exporters in ‘sweet spot’ before Brexit, may not last – BoE’s Broadbent. British exporters, who have been boosted by sterling’s fall but are still able to trade as before the Brexit vote, are in a “sweet spot” that is unlikely to last indefinitely, a top Bank of England official said on Thursday. Deputy Governor Ben Broadbent said the fall in sterling – down around 16 percent against the dollar since June’s vote to leave the European Union – ought to provide a powerful incentive to invest among companies that trade internationally. But businesses are “probably” already tempering their decisions to invest because of uncertainty about Britain’s trading prospects after it leaves the European Union, Broadbent said.