Morning Report: 3 April 2017

3rd April 2017 By: Ranko Berich

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GBP. Resilience was the main theme of sterling trading last week, as the pound seemed to shrug off the commencement of the Brexit Process. Friday’s data included the Nationwide House Price Index, which contracted 0.3% in February, and the Final revision to Gross Domestic Product Growth in the fourth quarter. GDP grew 0.7% as previously reckoned, but the index tracking Business Investment contracted, a particularly concerning development considering the crucial importance of investment to the post-Brexit outlook. This will be a reasonably busy week for sterling data, with Purchasing Managers’ Indices for the Manufacturing, Construction and Services sectors out today, Tuesday and Wednesday respectively at 09:30 BST, and Manufacturing and Industrial Production set for release on Friday. Brexit negotiations will continue this week, meaning political headlines will also be worth watching.

EUR. The euro steadily lost ground to USD last week, helped along by some poor releases on Friday. A number of European data releases fell short of expectations, most notably the eurozone Consumer Price Index, which rose only 1.5% year on year in March, while the core index rose just 0.7%, a slower rate than February. French Consumer Spending fell 0.8% in February, while German spending rose sharply by 1.8%. Fundamental data is likely to take a back seat to French election build up this week, but nonetheless Manufacturing Purchasing Managers’ Indices will be released for a number of eurozone countries this morning, culminating in the eurozone wide release at 09:00 BST, which will be followed by the Producer Price Index and the Unemployment Rate at 09:00.

USD. Despite being challenged by GBP last week, the weighted USD index DXY is trading above the 100.00 level at the time of writing, as USD momentum slowly began to build again last week. Friday’s data included slightly lower than expected Personal Spending in February, although the Personal Consumption Expenditures Price Index continued to rise, reaching 2.1%, above the Fed’s 2% target. The Core Index, which excludes fuel and other volatile items, remained at 1.8%. The Fed’s Bill Dudley mused that the Federal Reserve could begin normalising its historically large balance sheet as earlier as later this year, but said that two more interest rate hikes seemed reasonable. Dudley will speak again today at 15:30 BST, while Manufacturing Purchasing Managers Indices will be released by Markit and ISM at 14:45 and 15:00, the later accompanied by the month’s Construction Spending data. The week’s main events for USD will be the release of Fed meeting minutes on Wednesday, and Non-Farm Payrolls on Friday.

CAD. The loonie saw a few bursts of strength on Friday, but all in all failed to take advantage of the day’s strong data releases. Canada’s Gross Domestic Product grew 0.6% in January, double most expectations, as the manufacturing sector roared into life. The statistical release noted that with the exception of October, GDP rose every month since June 2016. The resource extraction industries also contributed significantly. Markit’s Manufacturing Purchasing Managers’ Index will be released today at 14:30 BST, followed by the Bank of Canada’s Business Outlook Survey at 15:30.

UK news

FT: Gibraltar tensions bubble over into British war talk. Spain deals second blow to UK by withdrawing opposition to Scottish independence. Theresa May would go to war with Spain to defend Gibraltar, a former Conservative leader claimed on Sunday, as tensions escalated between London and Madrid over the future of Britain’s overseas territory. Just days after the prime minister launched Brexit negotiations offering a spirit of “constructive, respectful and sincere co-operation”, senior Tories are furious at Madrid’s attempt to use exit talks to try to extend its influence over the Rock. Meanwhile Madrid dealt a second blow to Mrs May in as many days after stating it would not veto an application by an independent Scotland to join the EU, despite its previously expressed concerns that a break-up of the UK might fuel Catalan separatism.

Reuters: Warning signs abound for UK economy following strong fourth quarter. The British economy’s strong finish to 2016 looks likely to prove a high watermark as Brexit gets underway, according to a range of indicators on Friday which pointed to a growing squeeze on consumers. Households ran down their savings to a record low as their spending power shrank sharply in the last three months of 2016, official data showed. In another indication that the world’s fifth-biggest economy has lost some of its resilience to last June’s shock vote to quit the European Union, the dominant services industry contracted in January for the first time since March last year.