Morning Report: 24 February 2017

24th February 2017 By: Ranko Berich

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GBP.  Sterling took another major step up against USD yesterday, taking advantage of a broad sell off in the greenback. Political reporting dominated the headlines as the troubles of the Labour Party continued to play out in slow motion, with the loss of the Copeland constituency marking the first time a UK Governing party has won a seat in a by-election since 1982. The Financial Times reported that a close ally of Jeremy Corbyn, when asked if the Labour leader saw himself as a potential Prime Minister, said “I think he would rather be growing tomatoes”. Yesterday’s main data release for sterling was the Confederation of British Industry’s Realised Sales index, which rose to 8, from a previously contractionary reading of -8. Today at 09:30 the British Bankers Association will release Mortgage Approvals data.

EUR.  The euro continued its rally against USD yesterday, challenging the strong downwards trend that has been developing over the last couple of weeks amid a thin day of fundamental data. The GfK German Consumer Climate survey showed consumer climate down only slightly in February, while Italian Retail Sales contracted 0.5%. The contraction in Italian Retail Sales follows a comparably large one in November. Germany’s official statistical office reported that the Government’s budget had reached the highest surplus since reunification, underlining just how difficult the European Central Bank’s task to restore inflation is in an environment of tight fiscal policy from the eurozone’s biggest economy.

USD.  Wednesday’s high on the weighted USD index is starting to look more like a short term top, after the dollar sold off yesterday. US Treasury Secretary Steve Mnuchin said in an interview that the administration would assess if China was a currency manipulator, a rather significant step down from campaign promises from Trump that China would be officially labelled as a manipulator on day one of his administration. Mnuchin also reiterated that, unlike promises about China, tax reforms, particularly cuts for middle income earners, remained a top priority for the administration. Weekly Unemployment Claims crept up slightly to a still low 244,000. Today at 15:00 New Home Sales data will be released alongside Consumer Sentiment and Inflation Expectations data from the University of Michigan.

CAD.  The loonie also advanced against USD yesterday, as monthly North American oil inventory data showed that stockpiles of crude had finally stopped growing at an explosive rate, with stockpiles rising by only 0.6m barrels. Today at 13:30 GMT monthly Canadian Consumer Price Index data will be released, with markets looking for a rebound after December’s contraction in headline CPI.

UK news

Financial Times: Tories take Copeland in historic by-election defeat for Corbyn. Biggest rise in vote share by governing party at a by-election for more than 50 years. Jeremy Corbyn has suffered a humiliating by-election defeat by the Conservatives in the heartland seat of Copeland, piling pressure on the Labour leader to stand aside to arrest his party’s precipitate decline. The Tories won the Cumbrian seat with the biggest increase in vote share by a governing party at a by-election for more than 50 years, seizing a seat in an area that has been Labour since the 1930s.

Reuters: UK shop sales rise but retailers worry about inflation – CBI. British consumers returned to the shops this month but a sharp pick-up in inflation following last year’s Brexit vote has made retailers more downbeat about the outlook, an industry survey showed on Thursday. With the Bank of England and investors watching for how free-spending households react to higher prices, the Confederation of British Industry said on Thursday its retail sales balance rose to +9 this month after slumping to -8 in January. Despite the stronger-than-expected improvement, there was wariness among retailers, who said they were raising their prices at the fastest pace in almost six years and that prices would rise even more rapidly next month.