Morning Report: 14 March 2017

14th March 2017 By: Ranko Berich

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GBP.  Sterling is the worst performer of the G10 currencies this morning, as the prospect of a second Scottish independence referendum continues to escalate with Alex Salmond, influential ex First Minister of Scotland, reiterating in an interview with Bloomberg this morning his preference to leave the UK. Salmond’s comments come after Theresa May obtained the legal power to trigger Article 50, though it will now be delayed until the end of the month, in a move that appears to be related to the Scottish debate. As a result, the pound hit an 8-week low against USD, and it should be remembered that in the run up to the first referendum in 2014, sterling fell 7% in a two month period. No economic data is set to be released today.

EUR.  Spanish and German inflation were confirmed to have raised at a 5-year and 4-year highs respectively in February, continuing the Eurozone’s impressive macroeconomic performance over the last few months. The confirmation comes after Mario Draghi, the European Central Bank’s President, did not discard the possibility of an interest rate hike at the last ECB’s press conference last week in case price indices get close to the central bank’s target of 2%. Spanish and German inflation are now at 3.0% and 2.2% respectively. The German Economic Sentiment ZEW will be released later at 10.00 GMT, alongside the Eurozone’s similar indicator.

USD.  The US dollar is the best performer of the G10 as US yields in the 10-year maturity broken, and consolidated, above 2.6%, signalling that markets are expecting a hawkish Federal Reserve this week. However, interest rate market implied probabilities show that a small number of very strong bets are placed for a 50bp hike this week, and could quickly be reversed on Wednesday should the Fed call for caution ahead of the next increase in rates. As it was observed last week, wage inflation continues to disappoint, despite several states increasing minimum wages, which could favour a more prudent tone in today’s Fed meeting. The interest rate decision and statement are published tomorrow. Producer price index data will be published today at 12.30 GMT.

CAD.  The pair USDCAD resumes its upward trend today after a break last week due to both jobs reports in the US and Canada, which pushed the Canadian dollar higher. However, the recent crude oil price weakness, and increasing bullish bets on the dollar ahead of the Fed, are sending USDCAD towards the last year’s highs. No data will be released today from Canada.

UK news

FT: Brexit bill approval overshadowed by Scotland referendum demands. PM’s parliamentary victory upstaged by Sturgeon’s call for second independence vote. Theresa May has crushed parliamentary resistance to Brexit after MPs and peers gave her a free hand to start exit negotiations, but Downing Street was left with a new dilemma over Scottish independence. But her parliamentary victory was overshadowed by a pre-emptive strike by Nicola Sturgeon, Scotland’s first minister, who demanded on Monday morning that a second Scottish independence referendum be held within two years, before Brexit is finalised.

FT: Sterling weakens amid political uncertainty. Stocks mixed as dollar and Treasury yields rise ahead of Fed. The UK pound is back under pressure as traders become concerned that Edinburgh’s demand for a another referendum on Scotland leaving the UK adds to the uncertainty over Britain’s divorce from the EU.

Reuters: UK business confidence rebounds from four-year low – Markit. British business sentiment surged from a four-year low and hit its highest level since mid-2015 in February, a survey by Markit showed on Monday, marking a recovery in corporate optimism after last year’s Brexit vote. A net 52 percent of firms expected activity to grow in the next 12 months, the first time the reading has been above 50 since June 2015.