Morning Report: 27 February 2017

27th February 2017 By: Ranko Berich

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GBP.  Sterling is under pressure this morning after unconfirmed reports emerged over the weekend that UK Prime Minister Theresa May is actively preparing for Scotland’s Government announcing another independence referendum in the near future. The Times reported that “senior Government sources” said that Whitehall was planning for Nicola Sturgeon’s Scottish Government announcing a new independence referendum in the aftermath of article 50 activation by the UK. Although sterling is down across the board this morning, the reaction has been relatively mild, perhaps reflecting that there has been no official confirmation of the story. No data will be released today, and the week’s main sterling releases will come later in the week with the Manufacturing Purchasing Managers Index out on Wednesday.

EUR.  Last week’s strong euro data, combined with a USD selloff, allowed the single currency to crawl its way back from Wednesday’s lows. Spanish CPI . Today at 09:00 GMT, eurozone M3 Money Supply data will be released. This week will be busy in terms of euro data, with French CPI and GDP out on Tuesday, and German CPI out on Wednesday alongside Manufacturing Purchasing Managers Index data. Eurozone inflation data will be released on Thursday.

USD.  USD is trading flat this morning, after weakening in the second half of last week. This week will revolve around President Donald Trump’s speech to both houses of Congress, in the early hours of Wednesday morning GMT. Trump’s election win triggered a burst of astonishing USD strength driven by expectations of inflationary fiscal policy. The “Trumpflation” trades have since lost steam, but Trump has continued to promise tax cuts, and infrastructure and military spending. Wednesday’s speech is therefore an opportunity to outline a fiscal agenda, and stands out as a potential trigger for further USD strength, or indeed a sell-off if the President does not offer any substantial policy detail. Today at 13:30 GMT Durable Goods Orders will be released, followed by Pending Home Sales at 15:00 and a speech from the Fed’s Robert Kaplan at 16:00.

CAD.  The loonie’s progress against USD reversed last week, and CAD found itself again on the back foot. Canada’s inflation rate spiked to a two year high on Friday, as fuel prices pushed the Consumer Price Index up 2.1% year on year, but Core CPI which excludes fuel prices also rose a surprisingly strong 0.5% month on month. The increase in inflation will make this Wednesday’s Bank of Canada rate decision all the more interesting, although no new information on forward guidance is likely.

UK news

Financial Times: Ministers warn House of Lords against amending Brexit bill. Some peers intend to attach amendments but have been rebuked by the Tory leadership. Ministers have warned the House of Lords not to interfere with the legislation that will launch Britain’s exit from the EU, after growing signs of a revolt on the Conservative benches. On Monday, the upper chamber of the British parliament will restart the debate over the Brexit bill, after giving it an unopposed second reading last week. Over the weekend, some peers said they planned to attach amendments, drawing a rebuke from the Conservative leadership.

Reuters: UK services optimism is highest since Brexit vote – CBI. Optimism among businesses in Britain’s services sector is now higher than at any time since June’s vote to leave the European Union, despite the prospect of rising costs and prices eroding profits, a major business survey showed on Monday. The Confederation of British Industry said optimism about the outlook among business and professional services firms was the highest since November 2015, while consumer services firms’ optimism was close to levels last seen in May.