Morning Report: 13 April 2017

13th April 2017 By: Ranko Berich

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GBP. Yesterday’s currency movements were dominated by a late collapse in the US dollar following Trump’s comments indicating that the dollar is “too strong”. Sterling quickly jumped to a 2-week high against USD and is holding the gains at the time of writing. GBPEUR fell on the back of Trump’s comments as the euro strengthened, but it is recovering quickly. Elsewhere, UK labour market data showed wage growth remains far from matching the rapid increase in inflation seen in recent months. As a result, real wage growth, which is wage growth less inflation, turned negative for the first time since 2014. Consumer spending and the retail industry have been important drivers of growth over recent years, so a simultaneous weakening of these two factors could have critical implications for the UK. No data is expected today.

EUR. The euro jumped in late afternoon against the dollar following Donald Trump’s comments criticizing a “very strong dollar”. The dollar sold off massively across the board, and the euro was one of the biggest beneficiaries, which recovered most of last week’s losses against USD immediately after the comments. This morning’s trading has seen the euro already begin to weaken, as ongoing political risk remains a major drag on the single currency. Today’s data showed March’s final revisions of French and German inflation at 0.6% and 0.2%, unchanged from previous estimates.

USD. USD took a major hit yesterday as comments made by Donald Trump in an interview to the Wall Street Journal reverberated through news headlines. The most attention grabbing statement was that Trump still believed the dollar was “too strong”. Trump also took the time to completely reverse several previously emphatic campaign statements, such as his promise to label China a currency manipulator, and also did not refute the possibility of re-nominating Janet Yellen as Federal Reserve Chair. The US dollar remains weaker for now, but ultimately if Trump’s rhetoric is accompanied by policies that strengthen the dollar – such as inflationary fiscal policy – then statements such as those made yesterday will begin to have diminishing impact. This afternoon’s data includes Producer Prices at 13:30 BST alongside weekly Unemployment Claims, and Consumer Sentiment and Inflation Expectations from the University of Michigan at 15:00.

CAD. After taking advantage of last night’s USD weakness the loonie has extended its gains this morning. The Bank of Canada kept rates unchanged at yesterday’s meeting, while Governor Stephen Poloz gave a surprisingly hawkish assessment of the outlook for monetary policy, saying at the press conference following the rate announcement and Inflation Report release that the BoC had become “decidedly neutral”, and had not considered a rate cut at its last meeting. The conference marked a change in tone from Poloz, who in recent months has showed a preference for discussing downside risks and slack in the economy. Today at 13:30 BST Manufacturing Sales will be released alongside the New House Price Index, and BoC policymakers including Poloz and his deputy Carolyn Wilkins will testify to lawmakers at 15:30.

UK news

FT: US and Russia seek to tackle ‘low trust’ over Syria. Two nuclear powers cannot have this kind of relationship, says Tillerson. Russia and the US clashed publicly over the fate of Syria’s Assad regime on Wednesday, but seemed to ease the stand-off that had built up over recent weeks after “frank and substantive” talks in Moscow between Vladimir Putin and Rex Tillerson. The Russian president and US secretary of state met for two hours at the Kremlin, raising hopes of defusing mounting tensions following US missile strikes against a Syrian regime air force base last week.

Reuters: UK manufacturers report strongest export growth since late 2014 – BCC. British manufacturers reported the fastest export growth in more than two years in early 2017 and the services sector also recovered to rack up its strongest sales growth since last June’s Brexit vote, a business survey showed on Thursday. The British Chambers of Commerce, which runs Britain’s largest quarterly private-sector business survey, said firms reported a robust short-run outlook. But there was much more uncertainty about the medium term as well as fears of sharply rising costs.