Morning Report: 31 March 2017

31st March 2017 By: Ranko Berich

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GBP.  Although sterling does remain down vs USD compared to the start of the week, the pound is markedly stronger against the euro, despite the week’s long awaited and historic activation of Article 50 by Theresa May. Much of the week’s events, including yesterday’s announcement of plans to migrate European law into British statute books, have simply confirmed previously announced plans by the government. As a result, the market impact of the events has been diminished. Looking ahead, it is new information, particularly about the specifics of how much single market access Britain will lose, and about the health of the negotiations process itself, that is likely to retain the ability to move sterling. This morning’s data has included the Nationwide House Price Index, which fell 0.3% in March. At 09:30 BST the final Gross Domestic Product figures for Q4 2016 will be released, accompanied by the Current Account and Services and Business Investment indices.

EUR.  The euro has been mostly out of the spotlight this week, with the prospect of Marine Le Pen ultimately ending up in the Élysée Palace receding as a concern and EURUSD trending consistently downwards after last week’s big upwards shock. German Consumer Price Index inflation slowed to 0.2% month on month after last month’s rapid 0.6% spike, while Spanish inflation also fell short of expectations, helping the euro on its way down. French CPI followed suit this morning, while French Consumer Spending fell by 0.8% in February. Later this morning, eurozone Consumer Price Index data will be released at 10:00 BST.

USD.  Despite this week’s modest rally in places, USD is on track for its biggest quarterly drop in a year today, as the last three months have seen USD-long “Trumpflation” trades repeatedly called into question, most recently upon the failure of last week’s healthcare legislation. Economic data remains very strong in the United States – yesterday’s final revision of Gross Domestic Product growth in Q4 2016 was upwards, to 2.1%, and weekly Initial Jobless Claims remained very low. Equally, the Fed’s Kaplan and Dudley’s speeches yesterday seemed consistent with two to three more rate hikes this year. But further USD strength may now depend on the Trump administration delivering on the growth boosting promises that initially triggered USD strength upon the President’s election, and this will be a major theme for the second quarter of 2017. Today at 13:30 BSTPersonal Consumption and Spending data will be out, as well as the important Core PCE Price Index.

CAD.  The loonie saw a sharp burst of strength that quickly evaporated yesterday afternoon, and as of writing USDCAD remains at levels broadly comparable to the start of the week. Crude oil prices, however, have recovered nicely this week on a smaller than expected supply build up in North America, and continued hopes of further OPEC supply restrictions. Today at 13:30 BST monthly Canadian Gross Domestic Product data will be released.

UK news

FT: EU draws up tough stance on Brexit transition deal. Initial Brussels guidelines prioritise withdrawal terms over future relations. EU leaders are preparing a tough opening stance in Brexit talks, explicitly stating that Britain must accept the bloc’s existing laws, court, and budget fees if it seeks a gradual transition out of the single market. Draft European Council guidelines, which the EU27 leaders aim to adopt at a summit next month, lay down a flinty political response to Theresa May that prioritises withdrawal terms and the integrity of its founding principles rather than future UK relations.

Reuters: UK consumer lending slows, caution reigns ahead of Brexit. British consumer borrowing grew at its weakest rate in nearly two years over the past three months, Bank of England data showed on Wednesday, highlighting households’ sense of caution as Britain moved closer to leaving the European Union. Sterling’s slide since last year’s vote to leave the European Union is pushing up inflation, squeezing consumers and starting to undermine spending, one of the main factors to drive last year’s solid economic growth. Unsecured consumer lending in the three months to February rose at the weakest rate since July 2015 as annualised growth slowed sharply to 8.7 percent from 10.1 percent in January – a far cry from November’s recent peak of almost 12 percent.