Morning Report: 1 March 2017

1st March 2017 By: Ranko Berich

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GBP.  Sterling moved lower against USD yesterday and overnight, while avoiding any significant depreciation against the euro. UK news and data were somewhat out of the spotlight yesterday, as markets anticipated Donald Trump’s speech overnight. The Bank of England’s new incoming deputy governor, Charlotte Hogg, testified to Parliament’s Treasury committee yesterday. The testimony was more of a grilling at times, with lawmakers pressing Hogg to give explicit opinions on quantitative easing and other controversial economic topics. This morning at 09:30 GMT we have monthly Manufacturing Purchasing Managers Index figures, accompanied by Bank of England Money Supply data.

EUR.  The euro also took a major leg lower against USD yesterday, and an important day now looms on EURUSD, which is once again within spitting distance of historic lows. Little data of note was released yesterday, apart from disappointing French Consumer Price Index inflation and slightly higher than expected Italian CPI. This morning’s calendar is somewhat more substantial, with Spanish Italian, French and German Manufacturing Purchasing Managers Indices out from 08:15 onwards, culminating in the eurozone wide index at 09:00. German Consumer Price Index figures will be released throughout the morning, culminating in the nationwide release at 13:00.

USD.  USD is up this morning after an upbeat speech from Donald Trump to both houses of US Congress. Trump’s speech was disappointingly light on details regarding tax cuts and trade policy. However, he did promise to prepare a request to Congress for a $1 trillion infrastructure spending programme, invoking Dwight D. Eisenhower’s economic stimulus programme in the 1950’s in his speech. He also presented a much more conciliatory tone towards his Democrat political opponents, and was notably more measured regarding foreign policy. Despite of the lack of specific details on fiscal spending, the dollar rallied as markets put the focus back on the Federal Reserve’s monetary policy, causing bets on a further interest rate hike on March 15th to jump from 52% to 80%. This speculation has been further fuelled by a relatively hawkish comment from Federal Reserve policymaker Bill Dudley, who said yesterday that the Fed could raise rates even without waiting for details of actual tax policy. The strength of today’s economic data is therefore all the more consequential, with the Core Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, out at 13:30 GMT alongside the latest Personal Consumption and Spending data. Later in the afternoon, Manufacturing Purchasing Managers Index data from ISM will be released at 15:00, and Vehicle Sales data is also expected this afternoon.

CAD.  The loonie has been one of the more dramatic movers against USD this week, and continued to weaken rapidly yesterday. The Bank of Canada is overwhelmingly expected to keep interest rates unchanged, but considering the sustained improvement in crude oil prices and still improving outlook for foreign demand, a change to its press release explaining the factors for monetary policy may be expected. The BoC’s press release will be out at 15:00, and include its latest rate decision. BoC Deputy Governor Timothy Lane will speak at 18:00 GMT, on a topic unrelated to today’s decision.

UK news

Financial Times: Markets cool on Trump speech, taking cue from Fed policymakers. US president’s first address to Congress fails to provide direction investors sought. The dollar softened as US president Donald Trump made his first speech to Congress, but rallied strongly afterwards. Stocks pared gains and the US dollar initially eased as President Donald Trump’s first address to Congress failed to provide the policy details that markets wanted — and analysts let rip with their disappointment. The dollar softened as Mr Trump spoke but rallied strongly afterwards, reaching its highest levels in almost a week as investors refocused on the growing likelihood of an interest rate rise in March. On Tuesday two Federal Reserve policymakers — including William Dudley, the influential head of the New York Fed — said there was no need to wait for tax reform details before tightening monetary policy.

Reuters: UK shop prices fall more slowly, food prices rise for first time since April – BRC. Prices in British shops showed the smallest annual decline in over three years last month, adding to signs of growing inflation pressures after last year’s post-referendum fall in the pound, data showed on Wednesday. Overall shop prices showed annual deflation of 1.0 percent, after a 1.7 percent fall in January, the British Retail Consortium (BRC) said. Food prices – which are picking up in Britain due to global price increases as well as the weaker pound – rose for the first time since April last year, up 0.4 percent on the year compared with a fall of 0.8 percent in January, it said. The Bank of England expects inflation to rise to more than 2.7 percent by mid-2018, up from 1.8 percent in January and zero for much of 2015, pinching the pockets of consumers whose spending typically drives Britain’s economy.