Morning Report: 5 June 2017

5th June 2017

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GBP. Sterling opened the Asian session with a small gap to the downside after the terror attacks on Saturday in London Bridge. However, sterling has recovered overnight most of the losses, trading nearly flat against the euro and the US Dollar. No polls have been released including data after the attacks, but although Prime Minister Theresa May’s tough-talking reaction to Saturday night’s events were generally well received by the media, the nuances of the UK’s First Past The Post voting system means that market uncertainty over the election result is continuing to grow, which could weigh on the pound this week. However, the first major data of note this week will be today’s Services PMI, which is expected to show a slight contraction from last month. It is set to be released at 9.30 BST.

EUR. The euro opened trading overnight having held on to its gains from last week, though with today a bank holiday in several European nations, the market is likely to be fairly quiet for the rest of the day. This will change, as the spotlight will move later in the week to the European Central Bank’s meeting in Estonia on Thursday. After a very positive performance of the euro area over the last few quarters, questions are being raised about the necessity of a lax monetary policy, a topic that is expected to be discussed by the Governing Council of the ECB this week.

USD. The dollar remains opens the week under pressure, as Friday’s release of Non-Farm Payroll figures- the main gauge of the health of the labour market in the US- was, for the second time in three months, very disappointing. Despite a better-than-expected private sector job report on Wednesday, which raised expectations for headline job creation official figures, the 138k reading, against a forecast 181k increase, represented the third worst number in the past two years. Wages also continued to slow down, having fallen for three consecutive months. We still expect the Fed to hike in June, but the likelihood of a dovish statement following the decision (“dovish hike”) is increasing substantially. The ISM non-manufacturing index is released at 15.00.

CAD. The Canadian dollar begins the week with gains, further advancing against the dollar after Friday’s disappointing labour market data in the US, as opposed to quite positive Gross Domestic Product and productivity data in Canada last week. It appears that the last round of economic data in Canada is disconnecting crude oil prices from the loonie, although this could well be short lived.

UK news

FT: May says ‘enough is enough’ after London Bridge terror attack. Police arrest 12 in raids following assault that left 7 dead and 48 injured. Prime minister Theresa May has vowed to step up Britain’s fight against Islamist extremism, saying “enough is enough” after the country’s third terrorist attack in three months left seven dead and 48 injured. On Saturday night, a group of assailants in a rented white Renault van mowed down pedestrians on London Bridge before attacking others with knives in a crowded market nearby. Three attackers who appeared to be wearing suicide belts were shot dead within eight minutes of the first call to emergency services, the police said on Sunday.

FT: Eurozone recovery becomes surprise economic story of 2017. The consensus view among economists until recently was that the US would outstrip its advanced economy rivals this year, driven by the economic stimulus from Donald Trump in the White House and the Republican party in Congress. But the “Trump bump” has so far proved surprisingly feeble. Instead the economic story of 2017 has been the euphoric eurozone. Economic growth in the single currency area was more than twice as fast in the first quarter of 2017 than in the US, raising the question whether its recovery is just a pleasant blip or whether it is more deeply rooted and self-sustaining. The answer is of more than academic interest. If the European Central Bank believes the eurozone economy to be set fair, it can start to think about withdrawing the exceptional stimulus measures at its meeting in Estonia this week.