Morning Report: 8 May 2017

8th May 2017 By: Ranko Berich

GBP Sterling opens this week’s session with moderate gains against the euro as the single currency lost traction after an expected result in the French elections last night. GBPUSD is hovering near an 8-month high as US 10 year Treasury yields find some resistance around 2.36%, which is keeping a cap on the dollar. This week is a very slow one in terms of macro data for the UK. The main event though is the Bank of England’s Monetary Policy Committee meeting that takes place on Thursday. Markets remain focused on a possible shift in the central bank’s tone since one member dissented in the previous meeting calling for an immediate interest rate hike. If the MPC again shows some hiking intention, sterling could well rally towards the end of the week.

EUR The single currency opened Asia’s session with a spike after markets learned that Emmanuel Macron is the next President of France, ending fears of a populist upswing in the core of the Eurozone. However, investors appear to be unwinding long euro positions in a typical “buy the rumour, sell the fact” episode. Markets had already priced in Macron’s victory by the end of last week as polls strongly suggested the victory of the centrist candidate, which was reinforced after the debate on television. Moving ahead, markets find a lack of traction to buy the euro, expecting some sort of additional information ahead of new buying activity. We find particularly telling that the French equity benchmark (the CAC 40) is falling this morning, some 0.62% at the time of writing.

USD The dollar jumped out of the spotlight this morning as markets remain focused on the other side of the Atlantic. In terms of fundamental data, nothing important is expected until Friday when the most recent consumer price inflation figures will be released. After last month’s contraction in headline and core inflation, a modest rebound is expected.

CAD Crude oil and CAD recovered a good part of last week’s losses on Friday, after crude posted a solid 7% rebound from the week’s low. The loonie continues to recover today at the time of writing, despite opening slightly lower than Friday’s close. Crude oil price movements will overshadow Canadian fundamental releases as fears of further volatility are expected to dominate.

UK News

  • FT. Emmanuel Macron sweeps to victory in French presidential election Independent centrist beats far-right Marine Le Pen with 66% of vote. Emmanuel Macron has swept to emphatic victory in France’s presidential election, clinching 66 per cent of the vote to beat far-right candidate Marine Le Pen. The National Front candidate’s 34 per cent share fell well short of the most optimistic projections for Ms Le Pen, which had suggested she could win as much as 45 per cent of the vote in the second round.
  • Reuters. UK house price growth remains at near four-year low – Halifax British house price growth remains at its weakest level for nearly four years, mortgage lender Halifax said on Monday, echoing other signs of a slowdown in the housing market amid uncertainty about the impact of Brexit on the economy. House prices rose 3.8 percent in the three months to April compared with the same period a year ago, the same pace as in March which was the weakest increase since May 2013. Economists taking part in a Reuters poll had expected the pace of house price growth to slow to 3.6 percent.