Morning Report: 29 March 2017

29th March 2017 By: Ranko Berich

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GBP.  Sterling remains on track to register its first quarterly gain against USD since mid-2015, despite taking a hit yesterday as markets, politicians, and media digested news that Scottish Parliament had passed legislation for a second independence referendum, and today’s formal activation of Article 50 loomed. Theresa May’s letter to Donald Tusk, President of the European Council, will be delivered at around 12:30 BST, at which time May will deliver a speech that will, hopefully, give further detail on the government’s approach to Brexit negotiations. Of particular relevance to sterling is if May softens previously hard-line rhetoric in areas such as contribution to the EU budget, the amount paid by Britain as an “exit fee” of previous commitments, and the role of the European Court of Justice. Negotiations on the process and outcome of Brexit will then be able to begin today, and therefore some response from Europe’s leaders can also be expected. Prior to this afternoon’s political drama, Bank of England Money and Credit data will be released at 09:30.

EUR.  The euro gave way slightly to a resurgent USD yesterday, but remained on the offensive against sterling. No headline euro data was released yesterday, and today’s calendar is also rather sparse. This morning’s main release has already come and gone, with German Import Prices rising 0.7% in February, the fifth consecutive month of more than 0.5% monthly growth.

USD.  After taking a pummelling last week on the failure of “Trumpcare” legislation, USD is attempting a rally this week, and made progress against most of the G10 overnight after yesterday’s advances versus sterling and the euro. Yesterday’s fundamental data was positive, including a smaller than expected goods trade deficit, which, somewhat humorously given recent rhetoric from President Trump, may well be due to the timing of the Chinese New Year holiday in the nation that is the key source of US imports. The Richmond Manufacturing Index rose further in the latest release of the survey, and CB Consumer Confidence skyrocketed to its highest level since March 2000. Today at 14:20 Fed policy maker Charles Evans will speak, followed at 15:00 by Pending Home Sales.

CAD.  The loonie resisted yesterday’s USD rally fairly well, bouncing back after taking a hit in the early afternoon. Steady appreciation in crude oil prices throughout the day is likely to have helped CAD along. Today at 15:30 the latest North American crude oil inventory data will be released in the United States, with stockpiles expected to rise more modestly than last week’s explosive 5 million barrel increase.

UK news

FT: May ready to compromise as Brexit letter heads for Brussels. Theresa May signed the historic letter that starts Britain’s exit from the EU on Tuesday evening, amid new signals that the prime minister is willing to compromise to prevent the UK’s 44-year relationship with Europe ending in acrimonious divorce. Although Mrs May will make clear she is willing to walk away without a deal, behind the scenes British officials have signalled a willingness to soften rigid positions in areas such as the role of the European Court of Justice and paying the so-called “exit bill”, as well as a readiness to strengthen security ties. “We are going to get a deal,” chancellor Philip Hammond told the BBC on Wednesday morning. “We can’t have our cake and eat it,” he added in an apparent dig at foreign secretary Boris Johnson, who campaigned for the UK to leave the EU and has indicated that Britain would not need to compromise in order to maintain access to the EU single market. The official Article 50 exit process will begin on Wednesday just after 1.30pm in Brussels, when Sir Tim Barrow, Britain’s ambassador to the EU, presents Mrs May’s letter of withdrawal to Donald Tusk, the European Council president.

Reuters: PM May to fire starting gun on Brexit. Prime Minister Theresa May will file formal Brexit divorce papers on Wednesday, pitching the United Kingdom into the unknown and triggering years of uncertain negotiations that will test the endurance of the European Union. Nine months after Britons voted to leave, May will notify EU Council President Donald Tusk in a letter that the UK really is quitting the bloc it joined in 1973. The prime minister, an initial opponent of Brexit who won the top job in the political turmoil that followed the referendum vote, will then have two years to settle the terms of the divorce before it comes into effect in late March 2019. “Now that the decision has been made to leave the EU, it is time to come together,” May will tell lawmakers, according to comments supplied by her office.