Morning Report: 18 April 2017

18th April 2017 By: Ranko Berich

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GBP. Sterling is on the offensive this morning, after taking a brief step backwards against USD late last evening. This will be an extremely slow week for sterling in terms of fundamental data, and with market attention firmly focussed on geopolitical risk in North Korea and upcoming French elections, the pound is likely to find itself out of the spotlight. Bank of England Governor Mark Carney will give to speeches in Washington on Thursday, and monthly Retail Sales data will be released on Friday.

EUR. Despite several indicators of investor apprehension, such as option implied volatility and French-German government bond spreads, flashing red this morning, the euro remains quite resilient, particularly against USD and JPY. The French presidential race is likely to dominate news headlines this week, as polls show the four way race between Macron, Fillon, Melenchon and Le Pen is too close to reliably call. Polls for the second round of voting, between the two front running candidates, all comfortably place Le Pen, probably the worst case scenario in terms of euro risk, in second place. But as recent history has shown polling is unreliable, meaning it’s likely to be a volatile week for the euro with little certainty on offer about the outcome of Sunday’s vote. The first major data release will be the Consumer Price Index tomorrow.

USD. USD downside is a distinct possibility this week, after last week saw the latest collapse in US treasury yields lead USD lower. An interview by Treasury Secretary Mnuchin with the Financial Times over the weekend gave USD a very modest reprieve yesterday, after Mnuchin appeared to walk back some of the anti-dollar rhetoric from Donald Trump. Mnuchin also talked down the prospects of tax reform in the immediate future, saying that the failure of healthcare reform had set the administration’s plans back. Today at 13:30 BST monthly Building Permits and Housing Starts data will be released, followed at 14:15 GMT by Capacity Utilization and Industrial Production. Later in the week Mnuchin will speak on Thursday in Washington.

CAD. After reaching a high for the month last Thursday crude oil prices have been steadily deteriorating, and as a result the loonie came under pressure late last night and remains on the defensive this morning. Today at 13:30 BST Foreign Securities Purchases data will be released, followed at 17:45 by a speech from the Bank of Canada’s Carolyn Wilkins.

UK news

FT: US admits Trump tax reforms will be hit by healthcare setback. The US Treasury secretary has conceded that the administration’s timetable for ambitious tax reforms is set to slip following setbacks in negotiations with Congress over healthcare. Steven Mnuchin said the target to get tax reforms through Congress and on President Donald Trump’s desk before August was “highly aggressive to not realistic at this point”. “It started as [an] aggressive timeline,” the former Goldman Sachs banker said in an interview with the Financial Times. “It is fair to say it is probably delayed a bit because of the healthcare.”