Morning Report: 6 February 2017

6th February 2017 By: Ranko Berich

GBP Sterling continued to pare its gains from earlier in the week on Friday, after a soft Services Purchasing Managers’ Index release. Markit’s Services PMI remained in overall growth territory, but was less positive than expected, especially given that the sub index that tracks input costs rose to a six year high, suggesting a strong inflationary surge in the near future. No data will be released today, meaning tomorrow’s 00:01 GMT release of the British Retail Consortium’s Retail Sales monitor will start the week’s calendar. Later in the week Manufacturing and Industrial Output data will released on Friday, alongside the UK goods Trade Balance. Political wrangling over the activation of Article 50 will continue this week, but for now seems to have lost some of its ability to move the pound.

EUR The euro made only mild progress against sterling and USD last week, despite a week of strong data releases. Friday’s Services Purchasing Managers’ Index releases for eurozone countries showed a strong level of overall growth, with only Spain’s index falling noticeably short of expectations. Eurozone Retail Sales did contract 0.3% in December however, continuing their long wind down from November’s 1.1% spike. This morning German Factory Orders were reported to have jumped 5.2% in December. At 09:10 GMT eurozone Retail PMI will be released, followed at 09:30 by Sentix Investor Confidence.

USD As measured by the weighted USD index DXY, the US dollar had its worst week since July last week, as mounting political uncertainty overshadowed some fairly optimistic data releases. Friday’s Non-Farm Payrolls report showed the labour market continuing to add jobs at an impressive rate of 227,000 in January. Wage growth was less impressive on a monthly basis, rising just 0.1%. The Fed’s Labour Market Conditions Index will be released today at 15:00 GMT, and on Tuesday the Job Openings and Labour Turnover Summary will be released. In the meantime, political and legal drama emanating from President Trump’s selective travel ban is likely to continue, although markets will be watching the Presidential Twitter account for any further protectionist or fiscal expansionist noises.

CAD The loonie saw some intraday volatility on Friday but had a quiet finish to the week overall. The Canadian data calendar picks up this week, beginning with tomorrow’s release of Canada’s Trade Balance and Building Permits data, released just before the Ivey Purchasing Managers Index. Housing Starts and the New House Price Index will be released on Wednesday and Thursday, and labour market data will be released on Friday. As with the Mexican Peso, the loonie is likely to be sensitive to any further serious talk of renegotiating NAFTA, Canada’s most important trade agreement.

UK News

  • Brexit already having negative effect, say top business leaders – FT. Half of survey respondents pessimistic while May faces rebellion over Article 50 bill. Business is already suffering from Brexit, according to some of Britain’s biggest companies, lending weight to a cross-party effort by MPs this week to avert the risk of the UK crashing out of the EU without a deal. Despite a stream of positive economic data, an Ipsos Mori survey of senior executives from more than 100 of the largest 500 companies found 58 per cent felt last year’s vote was already having a negative effect on their business.
  • Weaker sterling only mixed benefit to UK exporters – Reuters. Sterling’s sharp fall against the U.S. dollar and euro since June’s Brexit vote has so far hurt almost as many exporters as it has aided, the British Chambers of Commerce said on Monday. A cheaper currency normally helps exporters in the medium term, but the BCC said that currency weakness was proving a double-edged sword for its members, mostly small and medium-sized businesses. Some 25 percent of businesses said sterling’s weakness had boosted their export margins, but 22 percent said it had reduced the profitability of their overseas sales.