Morning Report: 4 May 2017

4th May 2017 By: Ranko Berich

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GBP. Sterling has wilted in the face of widespread USD strength over the past 24 hours, with GBPUSD having now shed all of the attritional gains it had made over the past week. Theresa May gave a speech where she appeared to be leveraging a recent spat with European Commission President Jean-Claude Junker for domestic political capital, the latest move in a week of politicking from both sides. Of course, as negotiations proceed compromise is likely, but for now the political theatre remains only a minor driver for sterling regardless. Yesterday’s Construction Purchasing Managers Index from Markit showed reported output in the sector rising, and today at 09:30 BST the equivalent index for Services will be released, alongside Bank of England Money Supply data. The Services PMI figure is particularly important, given the sector’s dominance of the economy.

EUR. The euro took a hit against the US dollar last night, but has maintained momentum against sterling. Yesterday’s eurozone Gross Domestic Product growth figures were in line with expectations, coming in at 0.5% growth in the first quarter while Producer Prices contracted 0.3%. in March. This morning’s data has already included Services Purchasing Managers Indices from France, Germany, Italy and Spain, which showed solid reported output growth in the sector. Retail Sales data will be released at 10:00 BST, and later in the afternoon European Central Bank President Mario Draghi will speak at 17:30.

USD. Last night’s Federal Open Market Committee releases gave the dollar a sharp boost, as policy makers dismissed the recent slowdown in US economic activity as likely to be transitory, and signalled the Fed remained on track for a rate hike as early as June. Federal funds futures markets immediately responded, reflecting a far higher market-implied probability of a hike in June. Yesterday’s data also included a decent prints on services sector Purchasing Managers Indices from Markit and ISM, and an estimate of 177,000 jobs from ADP for Friday’s official non-farms report. Today at 13:30 BST weekly Unemployment Claims will be released, accompanied by Unit Labour Costs, Productivity, and Trade Balance data. At 15:00 Factory Orders will be released, rounding out an afternoon of important “hard data” that actually directly measures the state of the US economy.

CAD. The loonie remains under heavy pressure this morning as last night’s monetary policy statement in the United States gave the US dollar a burst of strength. US crude oil inventories registered a smaller than expected fall, suggesting the supply glut in the regional market is persisting. Today at 13:30 Canadian Trade Balance data will be released, followed at 21:35 by a speech from the Bank of Canada’s Stephen Poloz.

UK news

FT: May accuses Brussels of trying to influence UK election. Prime minister says EU politicians are making ‘threats against Britain’. Theresa May has accused “European politicians and officials” of threatening Britain and trying to sabotage her attempt to win the general election in an apparently deliberate move to stoke Brexit tensions with Brussels. Standing on the steps of Number 10, Mrs May claimed that events of recent days showed that “there are some in Brussels who do not want these [Brexit] talks to succeed”.

Reuters: After bumper March, UK car sales plunge in April. British new car registrations slumped by around 20 percent year-on-year last month following a record high in March when drivers brought forward purchases to avoid a tax hike, according to preliminary data from an industry body. Volumes in April are generally low as they follow on from March, often the top-selling month of the year as it is one of only two occasions when a new licence plate series is issued. This year, sales jumped to a record high in March as some consumers and businesses sought to avoid paying an increase in excise duty that came into force from April 1 for the most polluting vehicles.