Morning Report: 8 March 2017

8th March 2017 By: Ranko Berich

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GBP.  Sterling fell to its lowest level against USD since January yesterday, as the government’s latest setback in the House of Lords appears to have added further pressure ahead of today’s Spring Budget. The House of Lords added an amendment to the Article 50 bill giving parliament final approval of any Brexit deal with the European Union. The change is seen as weakening Theresa May’s negotiating hand. Today at 12:30 GMT, Chancellor Philip Hammond will present the Government’s Spring Budget, with the Chancellor expected to continue building up a £27bn buffer for government finances in case of adverse revenue developments during Brexit negotiations. Stronger growth forecasts from the Office for Budgetary Responsibility are expected to be a major feature of today’s budget, giving Hammond a revenue windfall that he is expected to mostly refrain from using.

EUR.  The euro also moved lower against USD yesterday, and as of this morning is hovering close to yesterday’s lows. GBPEUR is up compared to yesterday’s open. Apart from yesterday’s big contraction on German Factory Orders, the euro data calendar was relatively uneventful, with the latest revision to eurozone Gross Domestic Product growth leaving the 0.4% rate of growth in Q4 2016 unchanged. This morning’s main euro release has been German Industrial Production, which rose 2.8% in January after a 2.4% contraction in December.

USD.  USD continued to see broad strength yesterday, as fixed income markets reached a major milestone with the US 10 year treasury consistently trading at above 2.5% yield. The US Trade Balance recorded a larger than expected deficit in January, while IBD Economic Optimism fell. Today’s busy data calendar is however likely to contain a couple of surprises for USD, especially with 10 year treasury yields remaining near the important 2.5% level. ADP’s estimate of Non-Farm Payrolls will be released at 13:15 GMT, followed at 13:30 GMT by Revised Unit Labour Costs and Nonfarm Productivity data for Q4 2016. Wholesale Inventories will be out at 15:00.

CAD.  The loonie remained firmly on the back foot yesterday and is again under pressure this morning against USD. Yesterday’s release of the Ivey Purchasing Managers’ Index fell well short of expectations, and showed a substantial fall in the rate of output growth reported by survey respondents. Canada’s Trade Balance, however, rose further into surplus in January, beating expectations. Today at 13:30 GMT Building Permits and Labour Productivity data will be released.

UK news

FT: Pound hits fresh 7-week low ahead of Budget. Sterling is on the back foot this morning amid political uncertainty, notes of gloom on the UK economy and increased expectations the US will tighten monetary policy. The pound had already taken a tumble yesterday after softer than expected readings on UK house prices and retail sales last month, moving below $1.23 against the dollar for the first time since January. A decision last night from the House of Lords backing a demand for parliament to be given a vote on the final Brexit deal with the EU has since increased political uncertainty and is weighing on the pound.

Retures: Hammond readies budget plan in the shadow of Brexit. Britain’s Chancellor of the Exchequer Philip Hammond will say on Wednesday he will not relax his grip on the public purse, despite the economy withstanding the initial Brexit shock, as the challenge of actually leaving the European Union approaches. Hammond is due to announce at 1230 GMT the first full budget statement since the referendum decision to take Britain out of the bloc, which had been expected to deliver a quick, sharp economic blow to Britain.