Morning Report: 05 June 2018

5th July 2018

GBP.  Tuesday’s sterling positivity filtered into yesterday’s market action, with GBPUSD rallying nearly a third of a percentage point on the day. Service Purchasing Managers Index for June was released, showing the fastest growth of the service sector since November. The release helped sterling on its way, while the Composite PMI for the UK added another positive surprise in data. Negative Brexit headlines dominate News outlets, with the Financial Times reporting that Jaguar Land Rover, Britain’s largest car manufacturer, has warned that a hard Brexit would cost the company £1.2bn a year and thus making it unprofitable for them to stay in the U.K. Alongside this, David Davis, the UK’s Chief Brexit Negotiator, rejected Theresa May’s plans to propose a Facilitated Customs Arrangement as the aim for Brexit negotiations. This came days before Ministers are set to meet in Buckinghamshire to decide on a “white paper” which outlines the government’s objectives for a Brexit deal – uniting the government’s factions behind a common stance to take to the EU. However, further Brexit negativity has yet to impact sterling, as market participants become hardened to stalling developments. Today, a good measure of consumer economic expectations, New Car Registrations is released for June at 09:00 BST.

EUR.   A European Central Bank rumour that some of its Governing Council members are unhappy that markets are not betting on rate hikes before the end of 2018 gave the single currency some strength yesterday in the afternoon after being on the back foot earlier on in the day. This morning, the euro is on the offensive after German Factory Orders beat expectations by a wide margin in May with growth of 2.6%, while the April figure was also revised upwards by a full percentage point. After the positive Purchasing Manager Indices yesterday, this is a much welcome surprise for the Eurozone as it is an indication that the recent slowdown in growth has stabilised and risks may now shift to the upside again. ECB’s Jens Weidmann speaks today at 12.15 BST at the central bank of Austria’s Annual Economic Conference about the recipe for a more stable monetary union, while also ECB’s Mersch, Praet, and Nowotny make public appearances this morning.

USD. Yesterday, the fourth of July – a US bank holiday – the US dollar came under some minor pressure against a handful of G10 currencies, but it remained mostly a range bound affair given the absence of data and other developments. Markets mostly seem to be in “wait and see” mode before the US tariff deadline on Chinese goods on Friday, which also sees the release of the vital labour market reports for June. Today sees the ISM Non-Manufacturing PMI released at 15:00 BST and the Meeting Minutes of the Federal Open Market Committee’s 13th of June meeting will be published at 19:00 BST. As the dot plot shifted quite drastically in this meeting, markets may be looking for more details as to what caused this move – and what may reverse it again.

CAD. CAD remained on the back foot as markets are preparing themselves for US tariffs on Chinese goods that will be installed this Friday and the negative trade sentiment around this is contagious for the mood around the loonie. Additionally WTI crude oil is down more than a percent since yesterday morning, with lower oil prices being another factor dragging down CAD. With little in regards of data for Canada today, the Canadian Trade Balance, Employment Change, and Unemployment rates are scheduled to be published tomorrow afternoon, potentially inspiring more headlines that can set the loonie in motion.