Morning Report: 11 April 2017

11th April 2017 By: Ranko Berich

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GBP. Sterling rallied against USD throughout the day yesterday, while extending its gains versus the euro. Today’s release of price data by the Office for National Statistics is arguably the single most important event for sterling this month. CPI rose 2% in February compared to a year ago, while headline CPI overshot the BoE’s 2% target. Mark Carney and senior Bank of England decision makers have promised to look through a certain amount of overshoot in inflation but only if second round effects remain under control. Sterling is therefore likely to respond particularly sharply to a larger than expected increase in today’s figures. In addition to the headline Consumer Price Index, this morning’s releases at 09:30 BST will also include Retail Prices, Core CPI, Producer Prices and House Prices.

EUR. The euro is once again hovering near month lows against USD this morning, after a short lived and small rally against the greenback yesterday evening, as evidence mounts that the French Presidential election is becoming a tighter contest. The “Le Pen Spread”, or the difference between French and German government debt, has soared in recent days, reflecting financial markets pricing in the risk of a victory for the Eurosceptic right wing candidate. Today at 10:00 BST the ZEW Economic Sentiment survey results will be released, including the important and widely watched German index, at the same time as eurozone Industrial Production.

USD. Central bank chatter and geopolitical risk remain the main themes for USD this week, with the greenback paring some of yesterday’s losses overnight. Last night’s biggest news was a speech from Federal Reserve Chair Janet Yellen, who said the Fed was now focused at sustaining the economy’s progress, as opposed to ending an ongoing crisis, and as a result the central bank no longer needed to “press down on the gas pedal”. Yellen’s comments are entirely consistent with recent communication from her colleagues, and the Fed is widely expected to tighten policy further this year. Today at 11:00 BST the NFIB Small Business Index will be released, followed at 15:00 by the Job Openings and Labour Turnover Summary. Elsewhere, geopolitical risk continues to bubble in eastern Asia, with North Korea issuing a characteristically apocalyptic statement threatening pre-emptive nuclear force in response to any further “reckless acts of aggression” by the United States.

CAD. The loonie strengthened consistently throughout the day yesterday as crude oil prices continued their upwards march, and March Housing Starts data showed a sharp increase. No Canadian data will be released today, but with crude oil still trending upwards strongly and ongoing geopolitical tension it means that the loonie is likely to remain perfectly capable of further sharp moves.

UK news

FT: Consumers rein in non-food spending as inflation bites. Essential goods top of list as rising prices begin to affect shopping habits. Britain’s high street saw the biggest drop in retail sales, excluding food, in nearly six years in the first quarter of 2017, raising concerns about the strength of the country’s consumer boom. Non-food retail sales fell by 0.8 per cent in value over the period compared to a year earlier, according to figures from the British Retail Consortium, released on Tuesday. The BRC added that retail spending in March was likely to have been depressed compared with the same month a year ago by the different timing of Easter, which this year falls in April.

Reuters: Spending by UK shoppers stalls as inflation squeeze intensifies – BRC. Shoppers in Britain clamped down on their spending in early 2017 as retail sales rose at the slowest pace since the depths of the global financial crisis nearly a decade ago, a retail industry group said on Tuesday. In the latest sign of how consumers are reacting to rising inflation and slowing wage growth, total sales inched up by just 0.1 percent in the January-March period compared with the same three months of last year, the British Retail Consortium said. That was the weakest growth since the three months to December 2008, the BRC said.