Morning Report: 28 April 2017

28th April 2017 By: Ranko Berich

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GBP. Sterling was once again out of the spotlight yesterday with no major data releases or news developments, but did manage to make further, impressive gains versus the US dollar. Yesterday’s sole release of note was the Confederation of British Industry’s Realised Sales index, which rose to 38 from 9 previously. The release suggests that consumer spending picked up sharply in April, and that perhaps the recent decline in Retail Sales figures may be about to reverse. This morning’s data has included a 0.4% contraction in the Nationwide House Price Index. Today at 09:30 BST, the first release of Gross Domestic Product growth in the first quarter will be released. Given the poor performance of Retail Sales, many forecasters are expecting a slowdown in growth to around 0.4% for the quarter, but yesterday’s CBI survey result suggest there is potential for outperformance.

EUR. The euro weakened yesterday as European Central Bank President Mario Draghi once again worked his magic in a Press Conference outlining the rationale and outlook behind the ECB’s latest monetary policy decisions, which were also released yesterday. Rates, of course, were kept on hold. The crux of the meeting was the fact that even though growth has improved and certain Governing Council members are more “sanguine” about economic risks, the inflation outlook has not improved sufficiently for the ECB to formally consider an end to QE. How durable yesterday’s euro weakness proves remains to be seen, as the presser was basically an affirmation of the status quo, and further significant improvements in the outlook for inflation could certainly prompt a revision in the ECB’s strategy. This morning has seen the release of German Retail Sales, which rose slightly after sharp growth last month, German Import Prices, which fell sharply. French Consumer Spending also fell 0.4% in March, compounding February’s 0.7% fall, while French CPI rose 0.1%. Later in the morning, eurozone Money Supply data will be out at 09:00 BST, followed by the Consumer Price Index at 10:00.

USD. USD has been under pressure in the second half of this week, after Donald Trump’s tax plan was disappointingly light on detail. Yesterday’s data was middling, with Durable Goods Orders missing expectations and Pending Home Sales contraction. Today at 13:30 BST, crucial Q1 Gross Domestic Product growth data will be released. A dispute has been brewing between different forecasters of the US economy, due to the fact that “soft” data such as surveys seem to overstate the growth of the economy compared to “hard” data such as output. Today’s release will begin to show which of the data groups has been closer to the truth, with the potential to shake up USD as a result. Federal Reserve members Brainard and Harker will speak at 18:15 and 19:30 respectively.

CAD. The loonie again weakened yesterday, as it became clear US President Donald Trump planned on continuing his agitation for a renegotiation of NAFTA. Trudeau’s response to Trump yesterday seemed a little technocratic, saying that cancellation of NAFTA could cause “short and medium term pain”. Today at 13:30 BST monthly Gross Domestic Product growth figures will be released, alongside price indices for Raw Materials and Industrial Products.

UK news

Reuters: UK retail sales expand in April at fastest pace since September 2015 – CBI. British retailers reported the biggest increase in sales volumes since mid-2015 during April, according to an industry survey on Thursday that may help to allay fears of a worsening consumer-led slowdown. The Confederation of British Industry’s monthly retail sales balance spiked to +38 from +9 in March, confounding expectations for a decline to +6 in a Reuters poll of economists. The upbeat figure contrasted with official data that showed retail sales posted their biggest quarterly fall in seven years in the first quarter of 2017, reinforcing economists’ view that household spending, the main driver of the economy, is now slowing sharply.

Reuters: Trump says ‘major, major’ conflict with North Korea possible, but seeks diplomacy. U.S. President Donald Trump said on Thursday a major conflict with North Korea is possible in the standoff over its nuclear and missile programs, but he would prefer a diplomatic outcome to the dispute. “There is a chance that we could end up having a major, major conflict with North Korea. Absolutely,” Trump told Reuters in an Oval Office interview ahead of his 100th day in office on Saturday. Nonetheless, Trump said he wanted to peacefully resolve a crisis that has bedevilled multiple U.S. presidents, a path that he and his administration are emphasizing by preparing a variety of new economic sanctions while not taking the military option off the table.