Morning Report: 12 July 2018

12th July 2018

GBP.  Sterling was one of the best performing G10 currencies yesterday, despite the dollar posting gains against the whole board, due to markets anticipating further clarity over Brexit with the release of the white paper today. The much anticipated white paper will be released today, with a vote in Parliament expected Monday, and outlines the deal in which Theresa May will present to the EU. The white paper will divulge further details on areas such as the free trade area for goods and the facilitated customs arrangement, which were outlined in last week’s Chequers statement. The logistics of the deal, along with the reaction by the Eurosceptics within the Conservative party, will be followed carefully by market participants. The threat of a vote of no confidence may amplify given the white paper. If the proposed deal is softer than previously made out, the conservative faction may soon acquire the 48 participants to call May’s leadership into question. Data wise the Bank of England Credit Conditions Survey warrants the most attention, coming out at 9:30 BST.

EUR.  With the Eurozone economic calendar sparsely filled yesterday and no major political happenings the movement of euro was mostly determined by the turn of events elsewhere. This had it lose out against USD and CHF but gain against commodity sensitive currencies. This morning saw the German final Consumer Price Index coming in at expectations for June at +0.1%, while the French equivalent disappointed marginally and remained stuck at 0.0%. Eurozone Industrial Production for May is scheduled for publication at 10:00 BST, with Eurogroup members meeting today in Brussels the entire day.

USD. New tariffs announced by Trump on $200 billion worth of Chinese goods pumped up fears about a further escalation of trade tensions, which had the greenback as one of the main benefactors and eventually had it sovereignly top the G10 currency board. Unsurprisingly CNY and commodity currencies like AUD, NZD and NOK got lost deepest in red territory. Strong Purchasing Power Index data further fuelled the US dollar rally, coming in above expectations at 0.3% month on month for May, with both the core and the headline reading being at the highest level since 2011. Today at 13:30 BST the Consumer Price Index will be released, providing more information about rising price pressures in the US economy

CAD.  Despite a confident hike of the Bank of Canada the loonie was still on the back foot against USD as rising trade tensions and dropping oil prices hurt CAD in its weak spots. The BoC raised the rates with 25 basis points to 1.50%, as was broadly expected, and struck a self-assured, upbeat tone in the Monetary Policy Report as well as during the Press Conference. BoC Governor Stephen Poloz admitted that US tariffs will slow down the economy by ⅔% by 2020, but directly added the economy is still expected to grow above capacity until then, which justifies a tightening in monetary conditions. The BoC actually even raised its estimates of how much exports will contribute to Gross Domestic Product growth in 2018 to 0.5pp, compared to the 0.0pp in the April estimates. Another topic of conversation was that the BoC wants to remain data dependent and not base its monetary policies on hypothetical musings of how trade tensions might develop. The rest of the week sees no events on the calendar for loonie, which may make the currency the playball of developments in regards to trade tensions and related to oil markets for the rest of the week.