Morning Report: 4 July 2016

4th July 2016 By: Ranko Berich

GBP Sterling ended the week slightly up from Monday’s multi decade lows against USD, after a week of political turmoil that ultimately shed no light on who will lead Britain’s negotiations to leave the EU, or indeed what the fundamental negotiating position will be. EU leaders have indicated clearly that single market access requires subscribing to free movement of people, something that all of the front runners for the Prime Minister’s office have said will be controlled. How the leadership frontrunners deal with this issue this week may shed light on how negotiations for Brexit will play out, and therefore influence sterling. This week’s data calendar began this morning with the release of the Construction Purchasing Managers’ Index, which plunged to 46.0, showing that the surveyed businesses are reporting falling output. Tomorrow morning Services PMI will be released, alongside the Bank of England’s latest Financial Stability Report and a press conference given by BoE Governor Mark Carney.

EUR The euro spent last week recovering gradually against the US dollar, while also drifting higher against sterling. Friday’s data included a run of generally positive survey indices for the manufacturing sector, as well as eurozone Unemployment, which fell to 10.1%.This morning the Sentix Investor Confidence index, another survey based measure, was released at a reading of 1.7, indicating a very low level of confidence among the surveyed investors. Tomorrow more survey data will be released, with Services PMIs out for the eurozone and Retail Sales due to be released at 10:00.

USD The greenback had a good week last week, strengthening on a broad trade weighted basis and losing only marginal amounts of ground to EUR and GBP, which were recovering from the shocks of Brexit week. Today is Independence Day, and no data will be released, but the widely watched ISM Non-Manufacturing Purchasing Managers Index will be released on Wednesday, which will also see the release of the latest Federal Open Market Committee meeting minutes. Later in the week, the official Non-Farm Payrolls report will be released on Friday, with Unemployment expected to either remain stable or increase slightly from last month’s level of just 4.7%.

CAD The loonie strengthened last week, as crude oil prices rose back above the $50/barrel level and North American Inventories continued to show evidence of long overdue supply tightening. This week will be relatively busy for the Canadian data calendar, beginning today with the release of the Royal Bank of Canada’s Manufacturing Purchasing Managers Index at 14:30 BST and the Bank of Canada’s Business Outlook Survey at 15:30. Later in the week, Canada’s Trade Balance will be released on Wednesday, followed on Friday by Labour Market data.

UK News

  • Reuters. UK construction battered in June by Brexit fears. Britain’s construction industry suffered its worst contraction in seven years in June as concern grew about a referendum on European Union membership, according to a survey that was mostly conducted before Britain voted on June 23 to quit the EU.
  • FT. Brexit: George Osborne to slash corporate tax rate. George Osborne is planning to slash corporation tax to less than 15 per cent in an effort to woo business deterred from investing in a post-Brexit Britain as part of his new five-point plan to galvanise the economy.