Morning Report: 5 March 2018

5th March 2018 By: Ranko Berich

GBP Sterling strengthened slightly on Friday against USD, but is now back at Friday’s opening levels, while GBP’s performance against other currencies is more mixed. UK Prime Minister Theresa May’s “Our Future Partnership” speech on Friday set out the government’s desire for an ambitious trade deal with the European Union, though lacked detail, and therefore did little to rock markets. Today at 9:30 GMT the Services Purchasing Manager Index is published, with later in the week British Retail Consortium Retail Sales on Tuesday and the Manufacturing Production on Friday.

USD The greenback had a hard time on Friday against haven currencies like JPY, CHF and EUR, while it gained against others, quite likely because the threat of a coming trade war is hanging over markets like a dark cloud. President Trump revealed his plans last week to impose tariffs on steel and aluminium, which United Nations across the world in kindly telling the US president that retaliation tariffs would surely follow. This afternoon at 15:00 ISM Non-Manufacturing PMI is released and on Friday we have US labour market data, with the Non-Farm Payrolls, Average Earnings and the Unemployment Rate.

EUR Euro closed off the week on a high on Friday, but is now under pressure as the first results of the Italian election show that populist parties have harvested more votes than had been anticipated, which leaves the result of the election clouded in uncertainty. The Eurosceptic Liga Nord and the anti-establishment Five Star Movements arose as the big winners, with the FSM actually polling the most individual votes overall. A lengthy and difficult coalition forming process is likely to follow now. Elsewhere, in Germany the social democrat SPD party gave a green light to participate in a coalition with the Christian CDU/CSU parties, which grants Chancellor Angela Merkel her fourth term. This strengthens hopes for beneficial reforms in both Germany and the European Union. This week markets hold their breath for the European Central Bank’s Rate Announcement and following Press Conference on Thursday.

CAD The loonie was among the first victims of the tariff tremors that rippled through markets on Friday after Trump announced his tariff plans earlier, a movement which continues this morning. The loonie is not only hurt directly by the damage done to Canada’s steel industry, but also by the fears of what this can mean for the NAFTA negotiations. Canada’s calendar is a busy one this week, with the Trade Balance and the Bank of Canada Rate Announcement on Wednesday and Labour Market data arriving on Friday.

UK news

  • Reuters: ROME – Italy faces political gridlock after 5-Star surges. Italy faces a prolonged period of political instability after voters delivered a hung parliament on Sunday, spurning traditional parties and flocking to anti-establishment and far-right groups in record numbers. With votes counted from more than 75 percent of polling stations, it looked almost certain that none of the three main factions would be able to govern alone and there was little prospect of a return to mainstream government, creating a dilemma for the European Union.
  • Financial Times: Deal with SPD puts Angela Merkel back in Germany’s driving seat The result of the Social Democrat poll — 66 per cent of those who voted backed a grand coalition with the CDU and its Bavarian sister party the CSU — is a breakthrough for Germany. It brings to an end the political uncertainty dogging the country since inconclusive elections last September in which both blocs suffered their worst results since 1949.
  • Seattle Times: Trump embracing potential for trade war President Donald Trump is embracing the potential for a trade war after announcing his intent to place tariffs on imported steel and aluminum, as he rebuffs allies who have pushed to be exempted from the stiff duties. The protectionist policy will be made official in the next two weeks, White House officials said Sunday, as the administration defended the decision from critics in Washington and overseas. Trump appeared unbowed Sunday, as he tweeted that American “Steel and Aluminum industries are dead. Sorry, it’s time for a change!”