Morning Report: 5 April 2017

5th April 2017 By: Ranko Berich

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GBP. Sterling again drifted lower against USD yesterday, but lost some ground to the single currency. Theresa May suggested during a trip to Jordan that Britain may not finalise a new trade deal with the European Union prior to the completion of Brexit in 2019. Previously the Prime Minister has stuck fairly close to insisting that the two year time frame was sufficient for striking a deal, but when asked if she accepted the European Council’s position that a final deal would have to be concluded with Britain post exit, she seemed to leave some wiggle room for a possible later concession. Many UK and EU diplomats are widely reported to privately believe a trade deal will take longer than the two years before Brexit to complete. Markit’s Construction Purchasing Managers Index survey yesterday showed reported output in the sector once again expanding at a modest pace, with construction companies remaining relatively optimistic about the future. Today at 09:30 BST the Services PMI will be released.

EUR. EURUSD price action remained lethargic yesterday, despite the single currency managing to eke out some marginal gains versus sterling. Amid a global move towards safer asserts that has seen JPY perform fairly well, it is worth noting EUR has not been a major benefactor. Widening spreads between German and French government debt may reveal why: political risk continues to weigh on EUR. Last night’s debate between French Presidential candidates appears to have done little to change this, despite Eurosceptic Marine Le Pen putting in a poor performance and ranking fourth in two snap polls of the debate. Yesterday’s data included Spanish Unemployment, which fell by more than expected, and Retail Sales, which beat expectations to expand 0.7% in February. Throughout the morning from 08:15 BST eurozone Purchasing Managers Indices for the Services sector will be released, culminating in eurozone wide Services PMI at 09:00.

USD. Despite a minor scandal leading to the resignation of senior Federal Reserve policy maker Jeffrey Lacker, the US dollar was fairly placed yesterday, and traded in tight ranges overnight. Lacker resigned from his role as President of the Federal Reserve Bank of Richmond, after it was revealed he had indirectly confirmed confidential information to an analyst during a phone conversation in 2012. The US Trade Balance registered a smaller than expected deficit in February, as exports hit a two year high. The bilateral deficit with China narrowed 26.6% ahead of tomorrow’s summit between Donald Trump and Xi Jinping. China also overtook Canada as the biggest buyer of US oil exports, highlighting that the US-China bilateral relationship remains of paramount importance for both countries, and arguably the global economy. Today at 13:15 BST the ADP estimate of Non-Farm Payrolls will be released, followed by Services Purchasing Managers Indices at 14:45 and 15:00, and the latest meeting minutes from the Federal Reserve at 19:00.

CAD. The loonie extended its losses from Monday for most of yesterday’s session, before rallying in the late afternoon, and remaining stable since then. Canada’s Trade Balance fell into deficit in February, as exports fell 2.4% after reaching a record high in January. Crude oil prices continued to rally, reaching their highest level since early march. Today’s US Crude Oil Inventory data at 15:30 BST will be an important test for crude: another large supply build up is likely to increase pressure on spot prices, and the loonie.

UK news

FT: May suggests unrestricted EU migration will continue post-Brexit. PM indicates free movement of EU citizens to UK would carry on in transition period. Theresa May has indicated that free movement of EU citizens to the UK could continue for a period after Brexit, as she eyes an “implementation phase” after 2019, while new border systems and a trade deal are put in place. Mrs May, who is on a visit to Saudi Arabia, has subtly adjusted her language in recent days to bring her stance more closely into line with the EU negotiating position, which states that no trade deal can be concluded until after the UK leaves. She has also appeared to concede that the UK might have to comply with European Council president Donald Tusk’s demand that the EU’s “core principles”, including those relating to immigration, would have to apply during any transition period.

FT: Federal Reserve’s Lacker exits after revealing role in leak case. Richmond Fed president ‘crossed the line’ in confirming information to Medley analyst. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said on Tuesday he was stepping down immediately as he revealed he was involved in an alleged leak of confidential information to an analyst. Mr Lacker had previously announced plans to leave in October, but said in a statement that “in light of these matters I have decided to make my departure from the Federal Reserve effective today”.