Morning Report: 6 April 2017
6th April 2017 By: Ranko Berich
GBP. Sterling enjoyed a solid boost from yesterday’s Services Purchasing Managers’ Index release, which saw the index rise to 55, far greater than most forecasts which were for around 53. The anecdotal sections in the report highlight several themes of Britain’s post-Brexit economy, including sterling weakness boosting foreign demand, rising input costs, and ongoing uncertainty hampering investment intentions. Consumer orientated sectors were the worst performers, and so the weakness in retail sales over the last few months has indeed dented some parts of the economy. No major sterling data will be released today.
EUR. EURUSD remained stuck within its recent trading range yesterday, and ultimately closed very close to open despite some intraday moves, while the euro fell back slightly to sterling which was buoyed by strong domestic data. Services Purchasing Managers Indices were released for a number of eurozone nations yesterday and showed a decent rate of growth across the euro area, with eurozone wide PMI reading 56.0. German Factory Orders were released at 3.4% growth for February this morning, going a long way to unwinding last month’s sharp 6.8% drop. Later in the morning European Central Bank President Mario Draghi will speak at 09:00 BST, Retail PMI will be out at 09:10, and the ECB’s latest meeting minutes will be released at 12:30. Mario Draghi walked back speculations of interest rate hikes earlier today in a speech in Frankfurt, sending the euro to fresh 2-week lows.
USD. Despite some relatively hawkish meeting minutes from the Federal Reserve the US dollar actually managed to weaken slightly yesterday. The ADP estimate of Non-Farm Payrolls was 263,000 jobs in March, significantly more than expected by most forecasters. Services Purchasing Managers Indices from ISM and Markit both showed modest growth in reported output. The biggest detail to emerge from last night’s Fed meeting minutes was that most members expected the central bank to this year begin reducing the historically large balance sheet it has accrued through years of asset purchases and reinvestment. Such a move would truly begin to bring to an end the “QE” era and would almost certainly support USD to some extent, although details on how and when the Fed might begin to do so were scarce in the minutes. Today Donald Trump and Xi Jinping will begin their summit meeting, and are expected to discuss a wide variety of topics, including trade, foreign exchange, and North Korea. The prospect for market volatility in event of breakthrough, or breakdown, in discussions means the talks will be worth keeping an eye on, as will the presidential Twitter account. Today at 13:30 BST weekly Unemployment Claims will be released.
CAD. Despite getting off to a promising start yesterday morning the loonie ultimately found itself back on the defensive yesterday after crude oil inventories once again expanded in North America. Inventory data released by the US Energy Information Administration showed a 1.6m barrel increase in stockpiles, disappointing oil bulls and most forecasters, who were expecting a fall in stockpiles. Today at 13:30 BST weekly Unemployment Claims data will be released.
FT: Draghi dampens talk of ECB raising negative interest rates. Mario Draghi has downplayed speculation his central bank could drop its experiment with negative interest rates later this year, saying there were no plans to change the ECB’s commitment to keep rates on hold at least until the end of QE. Retail banks have called on policymakers to raise the ECB’s lowest rate, its deposit rate which stands at minus 0.4 per cent, which they say is eating into bank profit margins.
FT: Theresa May begins to dismantle Brexit roadblocks. UK prime minister accepts possible extension of EU rules after 2019. Theresa May has begun to dismantle roadblocks to a Brexit deal, including accepting the possible extension of free movement, as the European Parliament agreed to open the way to a potential “association agreement” between Britain and the EU. With Britain’s parliament in recess, the prime minister used a three-day visit to the Middle East to soften her stance on Brexit, effectively conceding that the UK may have to carry on playing by some EU rules after it leaves the bloc in 2019.