Morning Report: 2 May 2017

2nd May 2017 By: Ranko Berich

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GBP. Despite low trading volumes due to the UK’s May bank holiday yesterday, and there also being no data releases, sterling still strengthened further against the US dollar. Today at 09:30 BST the Markit Manufacturing Purchasing Managers Index will be released, providing an up to date look at the health of the sector. Even though manufacturing is a relatively minor part of the UK economy in output terms, it has enjoyed a strong increase in reported activity in recent months and so a slowdown would be an unwelcome surprise. Equivalent indices for Construction and Services will be released on Wednesday and Thursday, rounding off a slow week for sterling data.

EUR. The euro took advantage of yesterday’s weak US data and strengthened against the greenback, while also making progress against sterling. The European data calendar will start in earnest today, with Spanish Manufacturing Purchasing Managers Index data out at 08:15 BST, followed by Italian, French, and German equivalents in the lead up to European Manufacturing PMI at 09:00 and the eurozone unemployment rate at 10:00. Later in the week the first reading of eurozone Gross Domestic Product growth in Q1 2017 will be released on Wednesday.

USD. USD took a hit yesterday upon the release of inflation data. The Core Personal Consumption Expenditures Price Index fell by 0.1% in March, bucking the trend seen in headline CPI inflation, which has generally been positive. This brought year on year PCE inflation, which is the Federal Reserve’s preferred inflation measure, down to 1.8% from 2.1% previously, and was enough to send USD reeling. Construction Spending also contracted in March after strong growth previously, while Manufacturing Surveys from ISM and Markit showed the sector remained in growth. Total vehicle sales will be released throughout today. Later this week, the Federal Reserve’s latest rate decision will be announced at 19:00on Wednesday, and on Friday the latest Non-Farm Payrolls report will be released.

CAD. The loonie had a volatile day yesterday, but ultimately closed lower against the US dollar, despite a strong print on the Manufacturing Purchasing Managers Index, which rose slightly in April. With USDCAD hovering near its weakest point for the loonie in 14 months, this week’s data, and developments in crude oil markets, will be crucial. Canada’s Trade Balance will be released on Thursday, followed by Unemployment on Friday. In the meantime, the potential for an escalation in the trade spat started by the Trump administration last month remains a risk for the loonie.

UK news

FT: Brussels set for power grab on London euro-clearing market. Plans seek EU policing or operators’ relocation for €850bn-a-day business. Brussels is rushing out proposals to impose EU control on the City of London’s lucrative euro-clearing market, forcing UK operators to either relocate or be policed by European authorities. In a provocative regulatory salvo fired as Brexit talks begin, the European Commission is preparing to issue legislative proposals in June that would heavily restrict London’s ability to host one of its flagship financial businesses.

Reuters: British consumer confidence slips to four-month low in April – GfK. British consumers were their most gloomy in four months in April as they weighed up the outlook for the economy and their finances ahead of Brexit and June’s general election. Market research firm GfK’s measure of consumer morale slipped to -7 from -6 in March, in line with the median forecast by economists polled by Reuters. Still, the survey showed consumer confidence remained robust by historical standards, which may reassure policymakers who are watching to see how a recent rise in inflation is affecting household spending, the main driver of the economy.