Morning Report: 5 May 2017

5th May 2017 By: Ranko Berich

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GBP. Sterling spent yesterday’s session on a steady rally against the US dollar after some losses early in the morning, and has extended its gains this morning. Yesterday’s strong print on Markit’s Services Purchasing Managers Index, together with previous surveys for Manufacturing and Construction, suggested the UK economy was growing at around 0.6% a quarter, according to economists from Markit, the firm producing the surveys. Bank of England Money Supply data in the meantime showed a steady expansion in mortgage approvals. No further sterling data will be released this week.

EUR. After essentially trading sideways versus the dollar for several sessions, the euro saw a major breakout against the greenback yesterday, and is holding on to the advances well this morning, although it has weakened somewhat against sterling. Services Purchasing Managers’ Indices yesterday showed a steady pace of expansion in the sector across the region, while eurozone retail sales beat expectations to rise 0.3% in March. Today’s only major release will be Retail PMI at 09:10 BST, and although the French election on Sunday is viewed as now being overwhelmingly likely to end with victory for centrist Macron, the event itself will mean that the euro is likely to have a volatile start to next week.

USD. The US dollar came under pressure versus sterling and the euro overnight but advanced against commodity currencies such as AUD and NOK. Yesterday’s data releases were fairly solid, with weekly Unemployment Claims once again low at just 238,000, while Unit Labour Costs rose 3.0% In the first quarter, according to preliminary estimates, and the Trade Balance shrunk marginally. Factory orders rose 0.2% in March, after a sharp 1.2% pickup in February. Today at 13:30 BST the monthly Non-Farm Payrolls report will be released, providing the most important, and high impact look at the state of the US labour market. After Wednesday’s Fed statement revealed that the Federal Open Markets Committee viewed the slowdown in growth over the first quarter as transitory, today’s report seems to have a low bar to jump over in order to prove satisfactory for USD. Anything above last month’s rate of 98,000 jobs combined with decent figure for wage growth is likely to at least see the greenback stem the morning’s losses. Later in the evening, Fed Chair Yellen and her colleague Charles Evans will speak at 18:30 BST.

CAD. The US dollar has taken its Canadian counterpart out the back of the sugar shack and given it a thorough beating this week, as Crude oil prices fell to their lowest levels since November, before OPEC’s deal to cut supply. The writing has been on the wall for crude for some time, as North American stockpiles remained stubbornly high and production soared, suggesting the market supply glut will remain difficult to clear. The selloff has extended to other commodities and commodity currencies over the last 24 hours, as benchmark metals such as iron and copper also saw sharp declines. Today’s labour market data at 13:30 BST is likely to offer only a temporary distraction from crude-driven developments for the loonie.

UK news

FT: Conservatives make big gains in UK local elections. First results for nearly 5,000 council seats point to heavy losses for Labour. Theresa May’s Conservatives have made sweeping gains in local elections across Britain, results that point towards a comfortable Tory victory in next month’s general election, heavy losses for Labour and the collapse of Ukip. In the last big test of public opinion before the June 8 national poll, the Tories were set for their best local results for a decade with Mrs May’s party on course to make gains of several hundred seats and lay waste to Ukip. While the Tories were making solid advances across England and Wales, Labour was in retreat, losing control of Blaenau Gwent, Bridgend and Merthyr Tydfil in its South Wales heartland.

FT: Trump celebrates House vote to repeal Obamacare. Republicans provide first legislative victory for president’s agenda. Donald Trump celebrated his first big legislative victory by inviting Republican lawmakers to the White House after the House of Representatives voted to replace Obamacare. The House voted 217-213 to pass a Republican bill that would erase large portions of the signature healthcare reforms passed by Barack Obama in 2010. While the bill faces an uncertain future in the Senate, Thursday’s outcome was a big win for Mr Trump, whose first 100 days in office had ended without notable legislative achievements. “Its going to be an unbelievable victory?.?.?.?when we get it through the Senate,” Mr Trump said in the Rose Garden, flanked by dozens of congressmen “This has really brought the Republican party together.”