Morning Report: 22 February 2017

22nd February 2017 By: Ranko Berich

News in brief

To read this report in Spanish, click here. Para leer este reporte en Español, por favor presione aquí.

To contact us, please email or phone +44 20 3650 6320.

GBP: Sterling rallied after a morning sell off yesterday to close today stronger versus USD and EUR. The morning’s Treasury Select Committee testimony by Bank of England decision makers including Mark Carney and Andy Haldane was riven with conflict, as lawmakers pressed Carney and co hard on the Bank’s patchy recent forecast history and lack of clear forward guidance. Ultimately little new was learned about the outlook for monetary policy, but it was clear that the BoE’s tolerance for an inflation overshoot was in large part dependent on stability in inflation expectations, which are themselves increasing at the moment. Today at 09:30 GMT the second release of Gross Domestic Product Growth in the fourth quarter of 2016 will be released, alongside the latest Business Investment and Index of Services data.

EUR: The euro found some support against USD yesterday and resisted further weakness for a time, but has this morning plunged to new lows for the month against USD. Political risk remained a major theme, as Marine Le Pen extended her lead in French Presidential polls, at the cost of Francoise Fillon. The spread between German and French two year government bond yields swelled to its highest level since the financial crisis, indicating deepening investor concern about eurosceptic Le Pen’s chances of winning the Presidency of France. Yesterday’s fundamental data was actually very good for the euro however, as French, German, and eurozone Services and Manufacturing Purchasing Managers’ Indices all showed a highly satisfactory rate of reported output growth, although it was of little help to the euro. Today at 10:00 GMT the latest Consumer Price Index data will be released.

USD: USD made broad gains yesterday, most noticeably against the euro, but did not make inroads against sterling. US Central Bankers continued their talkfest, with the Fed’s Kashkari sounding a relatively dovish note in a speech, saying that the labour market had “more room to run” with workers re-joining the labour force and that the Fed should not stand in the way of this process with premature rate hikes. Kashkari did, however, say that the Fed’s gigantic balance sheet would need to shrink in the “not too distant future”. Services and Manufacturing Purchasing Managers indices from Markit both missed expectations yesterday, while remaining indicating of strong output growth nonetheless. Today at 15:00 Existing Home Sales data will be released, followed at 19:00 by Minutes from the Federal Open Market Committee’s latest meeting.

CAD: After an initial burst of weakness yesterday morning, CAD resisted further depreciation against the US dollar thanks to higher crude oil prices, during a volatile session. The loonie opens today’s session with gains as markets await the retail sales index, released today at 15.30 GMT.

UK news

REUTERS: Lloyds profit hits 10-year high as bank approaches full recovery. Lloyds Banking Group (LLOY.L) reported its highest full-year profit in a decade on Wednesday, as the taxpayer-backed bank nears a complete recovery from its crisis-era past. Britain’s biggest mortgage lender said pretax profit was 4.2 billion pounds, more than double the 1.64 billion pounds booked in the same period a year earlier.

GUARDIAN: British suicide bomber: UK security services ‘guilty of failings’. British authorities must accept some responsibility for failing to sufficiently monitor Jamal al-Harith, the Manchester-born jihadi who blew himself up in Iraq, before he left the UK to join Islamic State, a former government counter-terror strategist has said.

TELEGRAPH: Labour drawing up plans to work with Theresa May over Brexit, leaked memo reveals. Labour are drawing up plans to work with Theresa May over Brexit, according to reports. Jeremy Corbyn’s most senior aide has urged the leadership to take a “constructive approach” that will risk the party “getting our hands dirty” by not voting against the Government, a leaked memo has revealed.