Morning Report: 13 March 2017

13th March 2017 By: Ranko Berich

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GBP.  Sterling is rising this morning, after a band of rebel Conservative Europhile MP’s conceded that they were unlikely to be able to stop Prime Minister Theresa May triggering Article 50 this week. Although this would be the first time any country has invoked the legislation designed for a country’s exit from the European Union, markets have reacted positively to the perceived reduction in political instability, after last week a number of rebel Tory MPs had attempted to usurp the process. David Davis, a senior Brexit minister, asked the Conservative party “not to tie the Prime Minister’s hands” in the vote this evening. Meanwhile, there is growing speculation that Scotland’s First Minister, Nicola Sturgeon, may take advantage of the situation to call Scotland’s own independence referendum in 2018, using the same Brexit message of “taking back control”. In other news, the Bank of England meets this week for its monthly Monetary Policy Summary. With data showing inflation steadily rising, and growth beginning to show signs of weakness as higher prices erode consumer spending, close attention will be paid to the central bank’s inflation outlook. Specifically, markets are curious as to whether the BoE is prepared to allow inflation to continue running hot in order to maintain the economy’s momentum, or whether they are already looking to control it through interest rate hikes.

EUR.  What could have been a mere transition in power in the Netherlands, is quickly becoming an international crisis, after two Turkish ministers were barred from campaigning in the Dutch country for a referendum that would boost Turkish President Recep Erdogan’s power. This appears to be another attempt by Erdogan to destabilize the European Union, as the Netherlands is now on a black out period before the elections are held on Thursday. Diplomatic tensions flared, with Erdogan claiming that the ban shows “Nazism is alive in the west”, comments which were met with criticism from both the Dutch Prime Minister and Germany’s foreign minister. No significant data today but European Central Bank President Mario Draghi speaks today at 13.30 GMT in Frankfurt.

USD.  The Federal Reserve meeting is this week’s main economic event, though after yet another strong employment report on Friday, an interest rate hike is almost considered a foregone conclusion. Nonetheless, markets will also be closely watching any changes to interest rate hike forecasts from the Federal Open Market Committee members, which are also released on Wednesday. Some analysts and economists have begun wondering if up to four hikes could now be delivered this year. However, wage inflation, the big miss on last Friday’s jobs report, remains weak, which could reduce the Fed’s appetite to continue hiking rates too quickly.

CAD.  The loonie recovered some of the losses last Friday after Friday’s job report in Canada. Employment grew by an impressive 15,300 jobs against expectations of just 600 jobs, and the unemployment rate fell to 6.6%, the lowest since February 2015, and 0.1% above 8-year lows. This is a very slow week for CAD, and crude oil market developments will likely dominate the loonie’s trading.

UK news

FT: Theresa May on brink of triggering Article 50. Rebel MPs admit they are unlikely to block prime minister over starting Brexit process. Theresa May is on the brink of formally launching Britain’s departure from the EU as rebel Tory MPs admit they are unlikely to have the numbers to block the prime minister in the House of Commons on Monday. Mrs May could trigger Article 50, the mechanism for Brexit, any time from Tuesday if she succeeds in heading off the rebellion by a small band of Europhile MPs. That will start the complicated two-year process of unravelling more than 40 years of EU membership.

FT: Erdogan’s Dutch ‘Nazi’ comment sparks European backlash. Tensions rise after Netherlands blocks entry to Turkish foreign minister. Tayyip Erdogan, Turkey’s president, on Sunday accused the Dutch government of behaving like Nazis, capping a weekend of high drama that began when the Netherlands refused to let his foreign minister’s plane land for a rally in the Turkish referendum campaign. The dispute between the two Nato members reverberated across Europe after Denmark waded into the debate by cancelling a meeting between Lars Løkke Rasmussen, its prime minister, and Binali Yildirim, his Turkish counterpart. “With the current Turkish attacks on Holland the meeting cannot be seen separated from that,” Mr Rasmussen said.

Reuters: Britons raise inflation expectations – BoE survey. Britons have raised their expectations for inflation over the coming year due to the plummet in the value of sterling after the Brexit vote, although the number of people who believe interest rates will rise is little changed, a Bank of England survey showed. The quarterly survey published on Friday showed average public expectations for inflation over the next 12 months rose to 2.9 percent in February from 2.8 percent in the previous survey in November. Taking a five-year view, Britons expected inflation of 3.2 percent compared with 3.1 percent three months earlier.