Morning Report: 15 March 2017

15th March 2017 By: Ranko Berich

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GBP.  Sterling rallied in early hours of the European session, reversing all losses from Tuesday against EUR and USD. The move was sparked by the results of a poll conducted by YouGov, which showed that a majority of Scottish voters want to remain inside the UK (57% want to remain in the UK vs 43% who seek independence). Combined with a separate poll, the annual Scottish Social Attitudes survey, showing a surge in Euroscepticism, the Scottish National Party leader Nicola Sturgeon’s momentum for independence already seems to be rapidly losing steam. These developments have boosted sterling, helping it jump through strong resistance levels, sending GBPEUR and GBPUSD to a 4-day and 7-day highs. Labour market data, including the unemployment rate and the average earnings index, are released at 9.30 GMT.

EUR.  The Dutch elections are in the spotlight today, with far-right Party for Freedom (PVV) leader Geert Wilders expecting to win the popular vote, ahead of incumbent Prime Minister and head of the Party for Freedom and Democracy (VDD) Mark Rutte. However, with Wilder’s share of the vote likely to still only be around 20%, and all of the other major Dutch parties having ruled out forming a coalition with the PVV, market expectations remain that the anti-EU Wilders will be kept from power. The first reliable exit polls will be released around 21.00 GMT.

USD.  A strong Producer Price Index reading from the US yesterday, which measures inflation amongst wholesalers, further added justification to market expectations for an interest rate hike from the Federal Reserve today, with markets putting the likelihood of an increase at 100%. As a result, markets focus will instead be on clues to changes in expectations of future interest rate escalations. Sentiment is extremely bullish in the market at the moment, with numerous investment banks and analysts now expecting the Fed to hint that 3, rather than 2, additional hikes could be delivered this year. Ahead of the meeting, the Consumer Price Index, another key gauge of inflation in the US economy, will be released today at 12.30 GMT, and will help further inform the markets as to how aggressive the Fed could be expected to be. Retail sales data is also released at 12.30pm GMT, and the Fed will announce its decision at 18.00, followed by a press conference at 18.30.

CAD.  Volatility dominated the loonie yesterday, after a series of up and downs sent the loonie to a 2-day low. The loonie dropped after news emerged that Saudi Arabia was increasing production, and then CAD rallied when the American Petroleum Institute reported that US inventories had fallen by half a million against expectations of a modest build-up. North American crude oil inventories official data will be released today by the Energy Information Administration at 14.30.

UK news

FT: Dutch voters in crucial poll as Europe watches. Rivals differ over immigration and economy during TV clash on eve of neck-and-neck election. Dutch voters head to the polls on Wednesday after Mark Rutte, prime minister, and rivals clashed over refugees, immigration and the economy in the last televised debate following an extraordinarily tight race. After a campaign that was interrupted by a diplomatic spat with Turkey, by fears of foreign interference and by a row over the security of populist Geert Wilders, the vote is expected to be extremely close.

FT: The economic case for an independent Scotland rests on the EU. The economic case for an independent Scotland rests on the EU. Single market access could be cancelled out by damaging higher trade barriers with UK. Nationalists can no longer boast of bumper oil revenues when they make the economic case for an independent Scotland, but they could tout membership of the EU single market. In the 2014 referendum, the campaign to keep the union warned that independence would be a “leap in the dark” that would lead to economic uncertainty as Scotland disentangled itself from the UK.