Morning Report: 20 March 2017

20th March 2017 By: Ranko Berich

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GBP.  Sterling opens the week on a positive tone following last week’s “hawkish hold” by the Bank of England, which suggested that the next move by the central bank will be an interest rate hike. Although markets appear to be nervous of the upcoming activation of the Article 50, data shows that sterling is only seeing a muted reaction to negative information (such as the possibility of another Scottish referendum), whereas it is reacting well to positive information. A good amount of price related data will be released this week, including the consumer, producer, retail and house inflation indices on Tuesday, and retail sales on Thursday. If the inflation data is positive, sterling could well keep rallying on the back of the “hawkish hold” of last week, as it would imply higher chances of a hike in the near future.

EUR.  The euro opens the week mixed despite today’s producers inflation data in Germany, which rose to a 5-year high in February, feeding the impressive upward trend that began in April last year. The euro, however, does appear to generally be in a positive mood following last week’s comments from Ewald Nowotny, from the European Central Bank’s Governing Council, who said that “the ECB will decide at a later time whether to raise interest rates before or after ending its bond purchase program”. This was perceived as increasing the likelihood of seeing at least one interest rate hike, or signals of one coming at the beginning of 2018, towards the end of the year. No data will be released today.

USD.  The dollar is falling again today to its lowest level since mid-November, following the worst weekly loss since July last year. Federal Reserve speakers dominate the agenda this week, which is particularly relevant in order to better understand the timing of the next interest rate hike later this year. Chicago’s Charles Evans, New York’s Bill Dudley, Kansas City’s Esther George, Cleveland’s Loretta Mester and Boston’s Eric Rosengren speak across the week before Thursday’s Fed Chair, Janet Yellen, speech, followed by Minneapolis’ Neel Kashkari (last week’s dissenter at the FOMC meeting) and St. Louis’s James Bullard. Evan’s speak today at 17.10 GMT and US President Donald Trump speaks at 23.30.

CAD.  The loonie moved up again in the opening but is losing ground at the moment following lower crude oil prices. A bearish tone dominates crude oil markets after the CFTC report showed the biggest contraction in long oil positions on record, whilst short positions more than doubled. Wholesale sales data is released today at 12.30 GMT.

UK news

Reuters: ECB to decide later whether to raise rates or end QE first: Nowotny. The European Central Bank will decide at a later time whether to raise interest rates before or after ending its bond purchase program, ECB policymaker Ewald Nowotny told a newspaper on Thursday. The Austrian central bank governor said the ECB could hike its remuneration of bank deposits, currently below zero, before the main rates at which it lends to banks. His comments raise questions about the ECB’s own guidance, reiterated only a week ago, that rates will stay at the current level, or even fall, until well after the ECB’s 2.3 trillion euros ($2.48 trillion) bond-purchase program ends.

FT: May embarks on UK tour to extol Brexit benefits. Prime minister vows to deliver a deal that works for the whole nation. Theresa May will embark on a tour of the UK in an attempt to unite the country before she triggers formal Brexit negotiations at the end of the month. The prime minister will conduct talks with all the devolved nations starting in Wales, where she will be accompanied by David Davis, Brexit secretary, and Alun Cairns, Welsh secretary. The main point of discussion with Carwyn Jones, Welsh first minister, will be how every part of the UK can “make the most” of the opportunities created by Brexit.