Morning Report: 28 February 2017

28th February 2017 By: Ranko Berich

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GBP.  Sterling opened yesterday on the back foot on chatter of a possible new Scottish referendum, but quickly stabilised and is trading basically flat against USD and EUR this morning. GfK Consumer Confidence showed a small drop in consumer optimism in February, as the sub index tracking expectations of personal finances also fell amid rising prices. No sterling data will be released today.

EUR.  The euro strengthened rapidly yesterday morning, paring its gains somewhat in the late afternoon and evening to nonetheless close the day up against USD and GBP. European Union and International Monetary Fund officials will commence more negotiations and analysis in Athens today in an attempt to resolve the latest Greek debt crunch, which is dragging on due to the IMF refusing to participate in the current programme unless either sustainability provisions are made or additional austerity pre-legislated. Last week’s tentative deal between the parties revolved around further austerity, an extraordinary proposition given that Greece’s economy remains in ruins, largely due to previous austerity measures. This morning has already seen the release of French Consumer Spending, which expanded 0.6%, French Consumer Price Index inflation, which expanded by less than expected, and the second estimate of French GDP, which was 0.4% in Q4 2016.

USD.  The trade weighted USD index DXY fluctuated yesterday, at first selling off in the morning before rallying later in the afternoon. Durable Goods Orders rose an impressive 1.8% in January, although it is a volatile series frequently disrupted by large orders of high ticket capital goods, while the Core Durable Goods series, which excludes many such items, fell 0.2% after last month’s big expansion. Pending Home Sales, in the meantime, contracted 1.8%. Revised Gross Domestic Product growth for the fourth quarter of 2016 will be released today, at 13:30 alongside monthly Wholesale Inventories data, followed by the Chicago Purchasing Managers Index at 14:45 and CB Consumer Confidence and the Richmond Manufacturing Index at 1%:00. In the early hours of Wednesday morning, Donald Trump will give a key policy address to both houses of Congress, at 2am GMT. After Trump said in a speech yesterday that there would be no tax cuts until health care reform it’s possible the speech will be a dud, and not contain the infrastructure spending and tax cuts that markets are anticipating, and as a result that USD could see a disappointment driven sell off.

CAD.  Yesterday saw the loonie sell off against USD, as the greenback’s surge in the afternoon lifted USDCAD. No Canadian data was released, and although crude oil prices did not see any major moves, a slight sell off in the major crude indices in the afternoon may have helped USDCAD upwards. Today at 13:30 GMT Price Indices for Raw Materials and Industrial Products will be released.

UK news

FT: Brexit effect shakes up London dealmaking. Currency falls and cheap capital clash with political uncertainty. Over the past fortnight, two giant corporate takeover offers have spread alarm through Whitehall. Not since Pfizer’s abortive hostile bid for the Anglo-Swedish drugmaker AstraZeneca in 2014 have attempted deals caused such a fluttering in UK government ranks. First came Peugeot’s proposal to buy GM’s European car making business, an event that prompted UK business secretary Greg Clark to rush to the bidder’s Paris headquarters in search of assurances about the future of two Vauxhall plants in Britain.

The Guardian: Spring budget 2017: drop in government borrowing predicted. Solid economic growth and strong tax receipts since the Brexit vote have put Philip Hammond on course to announce a drop in government borrowing when he presents his spring budget next week, a leading think tank has predicted. The Resolution Foundation said it would be the first time since March 2014 that a chancellor could stand at the dispatch box and announce borrowing will be lower – not higher – than previously thought.