Morning Report: 1 June 2017

1st June 2017 By: Ranko Berich

GBP Despite sterling having spent most of yesterday recovering ground, with polls contrastingly showing the Conservative Party either enjoying a large lead or a razor thin one against Labour, the pound once again came under pressure overnight. Whilst political risk is ostensibly increasing intraday volatility in the pound, attempting to draw overall conclusions about the currency effects of potential hypothetical election outcomes remains a fool’s errand. This morning, markets have the opportunity to see some concrete data regarding the health of the UK economy, as at 09:30 BST we have the release of the Manufacturing Purchasing Managers Index data. Notwithstanding the sector only having begun expanding again last September, and five of the past seven readings having been at or below market expectations, forecasts are for a robust 56.5 reading, which would be the second highest level in three years.

EUR The euro once again enjoyed a relative lack of adverse headlines yesterday, and strengthened against USD. The day’s main economic release was eurozone Consumer Price Index inflation, which fell to 1.4% from 1.9% previously. The slowdown was well signposted by the European Central Bank, which viewed the jump to 1.9% as a transitory shock. Core inflation, which excludes volatile factors such as fuel, fell to 0.9%. Eurozone Unemployment continued to tick down, reaching 9.3%. Manufacturing Purchasing Managers Indices for European economies were released throughout the morning, with all of the major nations surveyed reporting solid growth in the sector. Eurozone Manufacturing PMI was unchanged from its last release at 57.0.

USD On a day of sparse data releases USD came under broad pressure yesterday, with a decent print on the Chicago Purchasing Managers Index being counteracted by a large contraction in Pending Home Sales. Today’s calendar will be significantly more eventful: ADP’s estimate of Non-Farm Payrolls will be released at 13:15 BST, followed by Unit Labour Costs and Nonfarm Productivity and weekly Unemployment Claims at 13:30. Manufacturing Purchasing Managers Indices from Markit and ISM will be released at 14:45 and 15:00 respectively, the latter accompanied by Construction Spending data. Total Vehicle Sales, which have struggled in recent months, will also be released throughout the day.

CAD CAD rose sharply yesterday as crude oil prices fell further. The move came despite a relatively strong print for Canadian monthly Gross Domestic Product growth, which surged to 0.5% in March following no change in February. Forecasts were widely distributed heading into yesterday’s release, and it appears that even the 0.5% figure may have been below market expectations. Crude oil prices surged overnight, however, and today at 14:30 BST Markit’s Manufacturing Purchasing Managers’ Index will be released, meaning the week’s potential for volatility is far from exhausted for the loonie.

UK news

  • Guardian: UK house prices fall for third month in a row for first time since financial crisis. House prices in Britain have fallen for the third month in a row, for the first time since the height of the financial crisis in 2009. The fall further dragged down the annual growth rate in May, to 2.1%, the lowest in nearly four years, providing further evidence that the housing market is losing steam, according to Nationwide, the UK’s biggest building society.
  • Telegraph: ‘Missing, Where’s Theresa?’ Social media roasts Prime Minister for not turning up at BBC debate. Theresa May did not attend the BBC election debate on Wednesday night but that didn’t stop her becoming the focus of attention on social media. Jeremy Corbyn’s decision earlier in the day to take part in the seven-way debate underscored the Prime Minister’s absence from the 90-minute event in Cambridge.
  • Daily Mail: Cost of home loans tumbles to record low: Average rate for a two-year fixed deal is now just 1.26%. Homeowners are currently enjoying the cheapest mortgage rates on record, official figures have revealed. A bid to drum up business has seen a fierce rate war break out between some of Britain’s biggest lenders.