Morning Report: 27 January 2017
27th January 2017 By: Ranko Berich
GBP Sterling did reach fresh highs against USD and EUR yesterday, but then began to retrace its steps, and finds itself on the defensive, especially against the greenback this morning. Yesterday’s biggest release was Gross Domestic Product for the fourth quarter of 2016, which was shown to have risen 0.6%. The release confirmed what other data had strongly suggested: that the UK economy performed exceptionally well in the second half of 2016, powered by strong consumer spending. Despite the cheery Q4 data, the outlook for 2017 is far from clear. The latest retail sales data shows a slowdown in spending, and inflation is only just beginning to bite. Businesses now also have a clearer picture of the path of Brexit, so investment behaviour is likely to change in 2017. No UK data will be released today, so markets will ponder yesterday’s release as well as the outcome of Theresa May’s meeting with US President Donald Trump. May hopes to create a close relationship with the protectionism inclined Trump, and ultimately secure a rapid trade deal.
EUR The euro was once again out of the spotlight yesterday, and gave way to a new bout of US dollar strength. Spain’s Unemployment Rate dropped to 18.6%, consistent with the slow but steady upwards trend in the domestic and regional jobs markets. The GfK German Consumer Climate survey also showed a slight uptick in the confidence of the surveyed consumers. Today at 09:00 GMT Eurozone M3 Money Supply data will be released.
USD The greenback is up against several major currencies this morning, as a trade war, and higher inflation, looms between the United States and Mexico after a twitter spat escalated between US President Donald Trump and his Mexican counterpart Enrique Pena Nieto. After several tweets from Trump saying that Mexico should pay for the construction of a border wall or not bother attending a planned meeting next week, Nieto cancelled the meeting. Several hours later White House spokesman Sean Spicer said that wall would be financed by a 20% import tax on Mexico, a move that most economists would describe as forcing US consumers to pay for the wall. Following criticism along these lines, deputy White House spokesperson Sarah Sanders said the import tax was “just an idea, nothing firm has been decided”. Trump’s follow through of campaign promises to build a wall and make Mexico pay for it underlines how uncertain the future of NAFTA, the US’s primary trade agreement, is. Today at 13:30 GMT the latest Gross Domestic Product figures will be released alongside Durable Goods.
CAD The loonie found itself on the back foot again yesterday after a strong performance on Wednesday. No Canadian data was released, as will be the case today, meaning moves in crude oil markets will remain the focus for CAD.
- White House weighs 20% import tax to fund US-Mexico border wall. Peña Nieto cancels Washington summit in first diplomatic row for new administration. The White House has sown confusion about how it will finance its US-Mexico border wall, just hours after Mexican President Enrique Peña Nieto cancelled a Washington summit with Donald Trump because of an escalating fight over the project. Mr Peña Nieto aborted his meeting with the US president after Mr Trump ordered his administration to start building the wall and repeatedly insisted Mexico would pay for it. “We have informed the White House that I will not go to the meeting scheduled for next Tuesday with @POTUS,” Mr Peña Nieto tweeted.
- Theresa May strikes balance between courtship and candour. UK leader hails special relationship but warns US not to ‘step back’ from global role. Theresa May will meet Donald Trump on Friday after winning plaudits for an ambitious foreign policy speech in which she subtly urged the US president to shoulder his global responsibilities to avert the “eclipse of the west”. The speech to Republican Congressional leaders on Thursday was on one level a familiar attempt by a British prime minister to curry favour with the new occupant of the White House by invoking the “special relationship”. Allusions to the 1980s pairing of Margaret Thatcher and Ronald Reagan also guaranteed Mrs May a warm reception from her Republican audience in Philadelphia.
- UK consumers turn more confident after December dip – Reuters. British consumer confidence showed its biggest monthly improvement since last summer in January, a latest sign that the Brexit vote has yet to unsettle the households who are driving Britain’s economy, a survey showed on Friday. After falling in December, the YouGov/Cebr Consumer Confidence Index rose 2 points to 110.3 in January, its biggest increase since August and its highest level since September. The improvement reflected a better outlook for house prices, businesses and household finances, YouGov and Cebr said.