Morning Report: 22 June 2017

22nd June 2017 By: Ranko Berich

GBP Theresa May’s bonfire of manifesto pledges actually turned out to be only the second most important event for sterling yesterday, which strengthened after a surprisingly hawkish speech from the Bank of England’s Chief Economist Andy Haldane. Haldane said that he may vote for a rate rise later this year, on the grounds that the sharp recent increase in inflation had changed the balance of risks associated with the decision to raise or hold rates. The risks of hiking “too late” had increased as a result, and so if current trends continues Haldane believed a hike would be necessary earlier than currently anticipated by markets. The comments stood in direct contrast to those made by Governor Mark Carney earlier this week, underlining the rising division within the BoE’s decision making Monetary Policy Committee. Elsewhere Theresa May’s Queen’s speech saw the abandonment of several high profile manifesto pledges, an unsurprising development given the chastening her party received at the ballot box. Today at 11:00 BST CBI Industrial Order Expectations data will be released, and outgoing MPC member Kristen Forbes will speak at 19:00.

EUR Euro momentum began to build again yesterday, as EURUSD rose steadily throughout the day. Yesterday was sparse in terms of top tier data releases, as will also be the case today. The ECB’s latest Economic Bulletin was released at 09:00 BST, and will be followed at 15:00 by eurozone Consumer Confidence figures.

USD Falling oil prices did little to boost the US dollar, which remained under pressure yesterday and weakened to sterling and the euro. The lone headline data release was Existing Home Sales, which were significantly higher than expectations at 5.62m in May. The US legislative process descended further into farce after Senate majority leader promised to release on Thursday healthcare legislation which has been negotiated in secrecy, despite criticism from lawmakers including Republicans. If the legislation is defeated for a second time, it will represent an embarrassing setback for the administration and its supporters in the legislature, and raise further questions about if Republicans can deliver the sweeping tax changes currently being touted in Congress. Today at 13:30 BST weekly Unemployment Claims data will be released, followed at 15:00 by the Conference Board’s leading index and a speech from the Fed’s Powell.

CAD The loonie weakened yesterday as the Brent Crude Oil benchmark fell below $45 a barrel for the first time this year, as market participants lose faith in OPEC’s ability to tame the persistent global supply glut. Rig counts and output in the United States have grown this year despite OPEC’s efforts, underlining just how inadequate the minor cut from record production levels was in the first place. Today at 13:30 BST, monthly Retail Sales data will be released.

UK news

  • FT: Theresa May scraps manifesto pledges to clear path for Brexit Two-year battle to deliver legislation in a hung parliament. A chastened Theresa May was forced to ditch a series of Conservative manifesto promises on Wednesday, as she cleared the decks for a two-year fight to deliver Brexit in a hung parliament. Mrs May told MPs she would deliver the bills in the Queen’s Speech “with humility and resolve” after the disappointment of this month’s election, but her weakness was illustrated as she abandoned key parts of the Tory manifesto. The speech delivered by the monarch at the State Opening of Parliament instead contained eight major Brexit bills, after new fears that the legislation could be held hostage by the SNP-controlled Scottish parliament.
  • Reuters: May will cut corporation tax to encourage economic growth Prime Minister Theresa May said on Wednesday her government would continue to cut corporation tax to encourage businesses to invest in Britain and help the economy grow. “If we’re going to grasp the opportunities as we leave the European Union, we need to build a stronger economy,” she told parliament after presenting her government’s programme in the Queen’s speech. “In this Queen’s speech we will continue to improve the public finances and work towards getting our country back to living within its means … and we will encourage businesses to grow and create jobs by continuing to cut corporation tax.”