Morning Report: 3 May 2017

3rd May 2017 By: Ranko Berich

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GBP. Strong manufacturing survey data boosted sterling yesterday, but the pound had a rough overnight session and has since retraced most of yesterday’s progress against USD. Yesterday’s Manufacturing Purchasing Managers Index for the manufacturing sector showed a boom in reported activity, with the index rising to a whopping 57.3 in the latest survey. This morning’s UK Shop Price Index data from the British Retail sales consortium showed the smallest annual decline in prices in more than three years, an indication of rising inflationary pressure in the economy. Elsewhere, political posturing by Theresa May’s government and her European negotiating partners intensified. May did her level best to channel Margaret Thatcher, claiming she will be a “bloody difficult woman” during negotiations, in response to Jean-Claude Junker’s apparent leaking of the weekend’s dinner conversation topics. This morning’s headlines also included reports of an increase in the European Union’s demands for Britain’s “exit bill”, which is expected to be a major point of contention. Although sterling is indeed trading down slightly, the lack of a true adverse reaction in the pound this week illustrates the extent of market apathy to Brexit risk at present.

EUR. The euro continued to make inroads against USD yesterday, as solid survey data was released and Greece agreed to further austerity in exchange for more bailout funds. Fresh pension cuts were included in the agreed package, potentially opening the door to debt relief in later negotiations. Yesterday’s eurozone Manufacturing Purchasing Managers Index data showed the sector in solid expansion, while Unemployment remained at 9.5%. This morning’s data has included German Unemployment (5.8%), and the latest eurozone Gross Domestic Product figures will be released alongside Producer Prices at 10:00 BST.

USD. USD pared back some of its losses from yesterday overnight, despite President Donald Trump appearing to call for a government “shutdown”, in a message on his Twitter account. Trump’s latest outburst comes after Sunday’s budget agreement between Democrat and Republican lawmakers did not contain funding to build a border wall with Mexico, which had been a key campaign pledge. In terms of economic data, yesterday saw news that Total Vehicle Sales had registered a sharp drop in April from the previous month, which had also been a disappointing month for auto makers. Auto sales, although volatile, are considered a good barometer of consumer spending. Today at 13:15 BST the ADP estimate of official Non-Farm payrolls will be released, followed at 14:45 and 15:00 by Services Purchasing Managers. The Federal Reserve’s latest rate decision will be announced at 19:00, and although extremely unlikely and not expected by markets, a rate hike cannot be entirely ruled out as a possibility.

CAD. Despite a lack of data releases yesterday and today USDCAD remained volatile, seeing another spike of weakness take the pair to fresh lows for the loonie as crude oil prices remained under heavy pressure. Today at 15:30 GMT US Crude Oil Inventories will be released.

UK news

FT: Brussels hoists gross Brexit ‘bill’ to €100bn. France and Germany back tougher approach to Britain’s departure obligations. The EU has raised its opening demand for Britain’s Brexit bill to an upfront gross payment of up to €100bn, according to Financial Times analysis of new stricter demands driven by France and Germany. Following direct requests from several member states, EU negotiators have revised their calculations to maximise the liabilities Britain is asked to cover, including post-Brexit farm payments and EU administration fees in 2019 and 2020. Although over coming decades Britain’s net bill would be lower than the €100bn upfront settlement, the more stringent approach to Britain’s outstanding obligations significantly increases the estimated €60bn charge mentioned by Jean-Claude Juncker, the European Commission president.