Morning Report: 1 September 2017

1st September 2017 By: Ranko Berich

GBP Like most of the G10, sterling weakened in the morning and early afternoon to USD, before rallying. Michael Barnier and David Davis made for the world’s most awkward two man pantomime act, giving a press conference to provide an update on this week’s Brexit negotiations. It was clear from the diplomatic language that no substantive progress had been made on the key issues, and Barnier warned he was “quite far” from recommending that negotiations proceed beyond the current issue of separation payments by the UK. Davis steered well clear of providing any detail on the negotiations, instead calling for “imagination”, although he did explicitly state that Britain acknowledged both legal and moral obligations when considering divorce payments. This morning’s data has included the latest Manufacturing Purchasing Managers Index, which showed reported activity growth expanding rapidly, and faster than expected as new orders soared.

EUR EURUSD was a stage for high drama – or at least what passes for it in currency markets – yesterday, with multiple surges of strength and subsequent reversals by the euro ultimately leaving the pair closing slightly higher than open. Yesterday’s data included Consumer Price Index inflation, which rose 1.5%, slightly faster than expected. The Core CPI, which excludes volatile items like fuel, rose an unchanged 1.2%. Manufacturing Purchasing Managers Indices were released throughout the morning, showing a rapid level of growth in the sector across the continent.

USD The dollar opened yesterday with a continuation of its rally from earlier in the week, but events and data in the afternoon sent the greenback into reverse, to close weaker against many majors including sterling and the euro. The Core Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation measure, rose 0.1% in July, leaving year on year inflation at 1.4%, down from 1.5% previously and the slowest rate since December of 2015. Consumer spending, in the meantime. Expanded 0.3%, marginally slower than expected. The two releases, combined with a surprise contraction in Pending Home Sales, was enough to take the edge off the dollar. But an interview given by Steve Mnuchin later caused further losses when the Treasury Secretary said that a weak US dollar was somewhat good for trade. Today is therefore a crucial day for the greenback, with the Non-Farm Payrolls release at 13:30 BST likely to prove decisive for this week’s attempted dollar rally.

CAD Loonie trading was more one directional than the rest of the G10 against USD yesterday, as strong gross domestic product growth data totally overshadowed falls in crude oil prices to give the Canadian dollar a major boost. Monthly Canadian GDP data showed the economy growing at a rapid 4.5% annualised rate, underlining the likelihood of a near term rate hike from the Bank of Canada. Strong consumption growth was the primary driver of the rapid increase in GDP. Today at 14:30 BST, Manufacturing Purchasing Managers Index data will be released.

UK news

  • TELEGRAPH: Labour is now party of ‘soft Brexit’ and could keep UK in Single Market and Customs Union, Tom Watson says. Labour is now the party of “soft Brexit” and could keep Britain in the European Single Market and Customs Union indefinitely, Tom Watson has admitted. Mr Watson confirmed Labour is positioning itself as the party of “soft Brexit” in comments which are likely to spark concerns of a betrayal of Leave voters.
  • GUARDIAN: Liam Fox accuses EU of trying to ‘blackmail’ UK over Brexit deal. The international trade secretary, Liam Fox, has ratcheted up the government’s war of words with the EU over Brexit by saying Britain will not be “blackmailed” into paying an excessive exit settlement to speed up a deal. Fox’s comment follows a tense press conference in Brussels on Thursday after the third round of exit talks, in which the EU’s chief negotiator, Michel Barnier, accused the UK of being mired in “nostalgia” rather than taking a realistic approach
  • TIMES: EU wants billions in foreign aid. The European Union is demanding billions of pounds after Brexit for aid to Africa, loans to Ukraine and environmental projects across Europe including bridges for wildlife.