Morning Report: 7 July 2017

7th July 2017 By: Ranko Berich

GBP The action was in fixed income and equities yesterday, which both sold off while sterling found some space to rally slightly vs USD. The pound did remain under pressure against the euro however. There were no headline data releases of note, but today’s calendar is considerably more lively. Halifax’s House Price Index will be released at 08:30 BST, followed by Industrial Production figures at 09:30, which will be accompanied by Construction Output and the Goods Trade Balance. A significant rebound is expected in Construction Activity after last month’s 1.6% drop, meaning the stakes for sterling in the event of another contraction seem rather high. The National Institute of Economic and Social Research’s estimate of Gross Domestic Product growth will be released at 13:00.

EUR Another major wave of euro strength swept G10 currency markets yesterday, as the single currency erased its losses against the dollar and made inroads against sterling as well. Minutes from the European Central Bank’s latest meeting made clear what President Mario Draghi seems to have been reluctantly acknowledging: the improved economic circumstances in the eurozone are indeed sparking conversation among senior ECB decision makers about at least changing the Bank’s dovish forward guidance. This morning’s data has included a decent print for German Industrial Production, which expanded by 1.2% in May, double last month’s rate. News emerged from the ongoing G20 conference that EU leaders were prepared to retaliate if the Trump administration implemented plans to limit steel imports, hardly a surprising development given the EU’s long history of muscular trade policy. Trump’s measures are targeted at China, where steel producers have, arguably, enjoyed inappropriate levels of state support, but the potential European reaction highlights the possibility of unintended consequences.

USD USD sold off yesterday as fixed income instruments sold off globally alongside equities, as markets began to price in the possibility of a wave of global monetary policy normalization. Yesterday’s data was mixed. ADP’s estimate of Non-Farm Payroll job creation was 158,000, significantly below the series’ medium term trend, although not altogether unexpected given tight labour market conditions. Services Purchasing Managers Indices from both ISM and Markit showed a greater level of reported activity growth. Today at 13:30 BST monthly Non-Farm Payrolls will be released, alongside Average Hourly Earnings. At this stage, wage growth is probably the more important measure as with Unemployment at 4.3% it’s unclear if the economy is capable of regularly creating 200,000 + jobs. The Federal Reserve’s Monetary Policy Report will also be released at 16:00, setting the stage for Fed Chair Janet Yellen’s testimony to lawmakers next week.

CAD USDCAD has been volatile this week, seeing several sharp swings, but has ultimately not moved very far from open. Yesterday’s session was spent recovering losses from Wednesday. Canada’s Trade Balance, which recorded a slightly larger deficit in May, while building permits soared a whopping 8.9%. Today at 13:30 BST Canadian Labour Market data will be released, followed by the Ivey Purchasing Managers’ Index at 15:00.

UK news

  • Reuters: UK starting salaries jump as Brexit vote hits staff supply – REC. LONDON Salaries for British workers starting in permanent jobs rose at the fastest pace since 2015 as businesses found it harder to hire staff, a problem exacerbated by Brexit, a survey of recruitment firms showed on Friday.
  • Guardian: Half of junior doctors having accidents or near misses after night shifts. More than half of trainee hospital doctors have had an accident or near miss on their way home after a night shift due to sleep deprivation, according to new evidence about fatigue among NHS staff.
  • Daily Mail: Labour take shock poll lead over Conservatives as ministers plot to oust ‘three-legged horse’ Theresa May in coup launched by series of autumn resignations. Labour have taken a shock poll lead over the Tories as ministers plot to oust Theresa May with a coup launched by a series of resignations in autumn. The first YouGov survey since the General Election last month puts Jeremy Corbyn’s party eight points ahead.