Morning Report: 20 April 2017

20th April 2017 By: Ranko Berich

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GBP. Sterling pared back Tuesday’s significant gains slightly yesterday, but has opened this morning on the front foot, particularly against USD. Parliament’s vote confirming a snap election will be held on June 8th had little effect on the pound, which remains stronger across the board compared to last week, despite yesterday’s slight pullback. No headline UK data will be released today, although Bank of England Governor Mark Carney will speak twice in Washington, at 16:30 BST and 17:30.

EUR. The euro also gave up some of Tuesday’s gains against USD over the course of yesterday’s session, as the French election continued to dominate headlines. A recent dip in polls for Emmanuelle Macron, who is viewed as the strongest second-round candidate to face off against Marine Le Pen, means that the result of Sunday’s election is even less certain. Far left candidate Jean-Luc Mélenchon has suddenly surged into contention, completing a four way race. Although the euro is holding up fairly well this week, volatility seems highly likely on Sunday night and Monday morning, especially if Le Pen or Mélenchon end up with a stronger than expected result. Today at 15:00 BST eurozone Consumer Confidence figures will be released.

USD. USD is struggling this week, having rallied yesterday only to come under broad pressure in the early hours of this morning, after strong inflation data in New Zealand underlined the diminishing potential for inflation and monetary policy divergence between the US and other developed economies. The Federal Reserve’s Eric Rosengren made some interesting comments yesterday, saying that he was ready to vote in favour of reducing the Fed’s massive, QE inflated balance sheet immediately. Such a move would likely raise US Treasury yields, but the comments went largely ignored by markets who remain sceptical of the potential of a large reflationary move in US fixed income. Today at 13:30 BST the Philadelphia Federal Reserve’s Manufacturing Index will be released alongside weekly Unemployment Claims. At 18:15Treasury Secretary Mnuchin will give a speech in Washington. Considering the market impact of Mnuchin’s last interview with the Financial Times, where he appeared to walk back Donald Trump’s recent criticism of a strong US dollar, the speech is likely to be watched closely.

CAD. The loonie is one currency that USD is not struggling to make progress against, as falling crude oil prices mean USDCAD has been on a relentless upwards trajectory this week. Yesterday’s crude oil inventory data in the United States showed stockpiles of crude finally falling, but by slightly less than expected, but an increase in gasoline stockpiles meant crude oil spot prices remained under pressure.

UK news

FT: Brussels starts to freeze Britain out of EU contracts. Commission memo tells staff to prepare to ‘disconnect’ UK. Brussels is starting systematically to shut out British groups from multibillion-euro contracts and urging companies to decamp to one of the 27 remaining EU members as it prepares for Brexit. In an internal memo seen by the Financial Times, top European Commission officials have told staff to avoid “unnecessary additional complications” with Britain before 2019, highlighting an administrative chill that is biting even before Britain leaves the bloc.

Reuters: Britain bumps up previous estimates for current account deficit. Britain’s current account deficit, one of the weak points of its economy, was bigger than previously thought in the years up to 2012, according to new estimates from the Office for National Statistics on Wednesday. The figures showed British companies had paid out more interest to foreign holders of corporate bonds than initially estimated, resulting in a larger current account deficit. The deficit, one of the biggest among advanced economies, has been in the spotlight since June’s Brexit vote. Bank of England Governor Mark Carney said in the run-up to the referendum that Britain was reliant on the “kindness of strangers”, highlighting how the country needed tens of billions of pounds of foreign finance a year to balance its books.