Morning Report: 10 July 2017

10th July 2017 By: Ranko Berich

GBP Sterling was hit by yet more poor data releases on Friday, rounding off a week of bad news regarding the economy. Industrial, Construction, and Manufacturing Output all contracted, disappointing general forecaster expectations for at least modest growth in the three releases. The United Kingdom’s Goods Trade Balance deficit also increased unexpectedly, as imports, particularly transport equipment, outstripped exports by a wider margin. News reports emerged over the weekend that Prime Minister Theresa May’s government is under increasing pressure from her own party. May is reportedly expected this week to launch a bid for cross-party policy making, inviting the Labour Party to give policy input, in a possible attempt to seek the political centre ground. No data will be released today, but tomorrow will see speeches from Monetary Policy Committee members Andy Haldane and Ben Broadbent. Later in the week important labour market data will be released on Wednesday.

EUR The euro fell back slightly against USD on Friday, but remains in a good place against the greenback relative to the last few months. Aside from some nice photo opportunities for politicians and rioters alike, the G20 summit in Hamburg largely passed without major incident. Today at 09:30 BST the Sentix Investor Confidence Index, a survey based optimism measure, will be released. Later in the week German and French Consumer Price Index figures will be released on Thursday, and France will celebrate Bastille Day on Friday.

USD Friday’s all important Non-Farm Payrolls release was something of a non-event for the US dollar, despite some sharp burst of volatility in the immediate aftermath of the report’s publication. Headline job creation, traditionally the most high profile part of the report, rose to 222,000 jobs in June, a solid beat of expectations. However, the Average Earnings Index rose only 0.2% after 0.1 growth in May, leaving year on year wage growth at 2.5%. The wage growth figure was not awful, but certainly not sufficient to dismiss lingering doubts about the outlook for inflation. The Federal Reserve’s latest Monetary Policy Report was also released on Friday, although as expected the report deliberately gave few clues as to the likely pace and timing of the Federal Reserve’s next few rate increases, while also pushing back strongly on suggestions that the Federal Reserve should set monetary policy based on simple, explicit rules. Federal Reserve Chair Janet Yellen will testify on the report this week to House lawmakers on Wednesday, and those from the Senate on Thursday. Consumer Price Index data will be released on Friday.

CAD The loonie traded mostly sideways last week, but had a spectacular burst of strength on Friday as labour market data showed the Unemployment Rate falling while total Employment increased by 45,300, the second consecutive month of strong growth. The data came after several weeks of hawkish statements from the Bank of Canada, including an important speech from deputy Governor Wilkins where she argued that the economy was performing well and said that the BoC would be assessing the current level of monetary accommodation. The stakes for this week’s BoC Monetary Policy Report, rate announcement and press conference are high, given that the BoC must now validate this hawkish rhetoric with a hawkish outlook, if not an outright rate hike. The BoC interest rate decision announcement is scheduled on Wednesday at 15.00 BST.

UK news

  • FT: May braced for backlash over historic repeal bill. Mutinous Tories poised to hit out as PM makes overtures to rival parties. Theresa May will this week pledge to embrace ideas from Labour in an attempt to shore up her premiership against mutinous MPs, as she prepares to publish the most significant piece of Brexit legislation. Manoeuvring among ambitious backbenchers and pro-EU MPs is intensifying ahead of Thursday’s publication of the repeal bill, in the first significant legislative step towards replacing European law in the UK. The bill is set to face a backlash when it is debated in the autumn, with calls for amendments such as Britain remaining in certain regulatory agencies.
  • Reuters: Big UK firms curtail investment plans, consumer slowdown deepens – surveys. The chances of Britain’s economy picking up steam diminished further on Monday as surveys showed major companies have curtailed their investment plans and that consumers spent less on their credit cards. The reports added to a string of lacklustre economic data that has raised questions about the chances of the Bank of England raising interest rates this year. Accountancy firm Deloitte said business optimism at large British companies fell sharply in the second quarter, dampened by the inconclusive outcome of last month’s national election. Deloitte’s survey of chief financial officers showed 72 percent thought the overall business environment would be worse once Britain leaves the European Union, the largest proportion since Deloitte started asking the question a year ago.