Morning Report: 6 October 2017

6th October 2017 By: Ranko Berich

GBP Sterling came under further selling pressure yesterday, as news of a brewing rebellion against the Prime Minister made it to the wires. Grant Shapps, former Conservative chairman, emerged as the leading figure of the plot against Theresa May, saying that it is the Tory MPs’ right to “urge the UK Prime Minister to quit”. This week has been a bad week for the pound, with a string of data on the whole being disappointing, negatives headlines continuing to abound regarding Brexit, and now the PM having to fight off a rebellion from within her own party. A likely candidate, should May be forced to quit, would be Boris Johnson, a well-known hard Brexit advocate. Sterling’s immediate future does not look great at the moment, and expectations of May resigning could lead to markets pricing in a harder Brexit aggressively.

EUR The single currency remains relatively out of the spotlight as events in the UK dominate headlines, though has continued to weaken against the dollar, currently sitting at close to the lowest level in three months. The Catalan crisis remains the main theme of the Eurozone as Spanish central government tightens its grip around Catalan leaders ahead of a critical speech on Monday by Cataluña’s President Carles Puigdemont, where he is expected to declare the independence unilaterally. The two most important Catalan banks, Sabadell and Caixa Bank, both have reallocated their HQ to other Spanish regions outside the affected region, and the Spanish central government aims to pass a decree that would allow any company based in Catalonia to reallocate anywhere else in Spain. Euro area retail sales data unexpectedly contracted in the euro area today.

USD The dollar consolidates as the strongest currency this week, favoured by very positive data in the US this week and negative sentiment elsewhere. Now all eyes are focused on this week’s payroll data. The U.S. September payrolls data will provide a decent glimpse at output impairment from the summer storms. Consensus expects an 80,000 job increase, about half of August’s total, with a modest uptick in the pace of wage growth to 0.3% on the month. If payrolls beat estimates, despite current low expectations, it would likely improve momentum in the dollar ahead of the weekend. The labour market data will be released at 13.30 BST.

CAD Terrible trade deficit data in Canada yesterday pushed the loonie to new 5-week lows as the data showed deficit expanding even beyond the gloomiest forecasts, when the actual consensus pointed towards a contraction in such deficit. USDCAD rallied more than 1% immediately after the release, suggesting that markets now are becoming very sceptical about future rate hikes, as a stronger CAD would only worsen the trade deficit situation. Canada’s labour market data will be released at 13.30 BST.

UK news

  • FT: Plot to oust Theresa May breaks into the open. Ex-Tory chairman Grant Shapps emerges as ringleader of rebellion against prime minister. Grant Shapps, former Conservative chairman, has emerged as a ringleader of the plot to oust Theresa May, saying that Tory MPs were “perfectly within their rights” to urge the UK prime minister to quit. Mr Shapps said up to 30 Conservative MPs supported the move but that no current cabinet ministers were involved, as the party reacted to Mrs May’s disastrous party conference this week. Speaking on BBC 5 Live, Mr Shapps said: “We did have a result that was not at all what anyone wanted, least of all what she wanted or anticipated, and?.?.?.?sometimes when things happen you have to take responsibility for them.
  • Reuters: Both pro and anti-Brexit MPs back ousting May – Shapps. Former Conservative Party chairman Grant Shapps said on Friday that both supporters and opponents of Brexit were among the 30 lawmakers who back a plot to topple Prime Minister Theresa May. Divisions over May’s future burst into the open on Friday after her conference speech was ruined by a comedian, coughing fit and even letters falling off the slogans behind her on stage. Shapps told BBC radio that there was a broad range of MPs urging May to step down. “These are Remainers, they are Brexiteers. They would never automatically agree on a single candidate and this is not about promoting an individual,” he said.