Morning Report: 9 March 2017

9th March 2017 By: Ranko Berich

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GBP.  Philip Hammond’s Spring Budget was little comfort to sterling yesterday, which continued to fall against USD, and is now trading at its lowest level since Theresa May’s January speech that spooked markets regarding Brexit. Sterling did manage to put up more of a fight against the euro, and after a midday wobble yesterday is now trading only slightly below yesterday’s open. Hammond’s budget was largely beside the point for sterling; being fiscally neutral, there were few clear macro effects for markets to price. The promised increase in infrastructure spending and commitment to productivity remains very welcome. However, the budget’s fiscal stance is unlikely to stimulate a significant boost to growth, and with a report this morning claiming that, based on the Office for Budget Responsibilities own official forecasts, this is set to be the worst decade in 210 years for real wage growth, headlines remain negative for the pound.

EUR.  The euro also continued to trend downwards against USD yesterday, reaching a fresh low this morning. The European Central Bank will announce its latest rate decision today, and although no change in policy is likely, today’s Press Conference by President Mario Draghi will be closely examined for hints the ECB’s commitment to continuing monetary easing may be wavering. Inflation in the eurozone is now at 2% for the first time in four years, and some of the more hawkish members of the ECB have already argued that if this increase is sustainable, the ECB should begin to withdraw accommodation. Inflation projections released today will therefore be critical. The ECB’s decision will be announced at 12:45 GMT, followed by a Press Conference at 13:30.

USD.  USD remains on the offensive this morning, after an exceptionally strong estimate of monthly Non-Farm Payrolls was released by research company ADP yesterday. ADP estimated Non-Farm employment had increased by a whopping 298,000 in February, a figure well above recent trend that is likely to increase already fever pitch speculation that the Federal Reserve will hike interest rates at next week’s meeting. In addition to ADP Non-Farms reasonably solid Productivity and Unit Labour Costs revisions for Q4 2016 were also released, and Wholesale Inventories contracted by more than expected in January. Today at 13:30 GMT weekly Unemployment Claims will be released, alongside Import Prices.

CAD.  The loonie was once again slaughtered by USD yesterday, after yet another massive crude oil inventory build and ensuing price drop for crude. Monthly Building Permits rose 5.4% in January after December’s sharp drop, and Labour Productivity increased 0.4% in Q4 2016. But the 8.2 million barrel increase in crude stockpiles reported by the US Energy Information Administration quickly created a rout in the loonie and underlined just how strong output growth currently is in North America. Today at 13:30 GMT the New House Price Index will be released alongside Capacity Utilisation.

UK news

FT: Philip Hammond defends Budget changes to National Insurance. Chancellor insists tax rise is fair despite brewing backlash from fellow Tories. A defiant Philip Hammond has insisted that he will press on with plans to raise National Insurance contributions, despite a ferocious media backlash and signs that Conservative MPs could rebel to block the move. Mr Hammond refused to apologise on Thursday morning for breaking a Conservative manifesto promise in his Spring Budget by hitting 2.5m self-employed people with a rise in NICs by an average £240 a year.

Reuters: UK faces tougher Brexit challenge after better 2017. Britain’s economy is likely to feel the pain of Brexit more sharply in the coming years despite holding up well so far, according to Chancellor Philip Hammond’s latest plan to steer the economy through its split from the European Union. Hammond, announcing an annual budget shortly before Britain is due to launch its Brexit divorce process, said the world’s fifth-biggest economy had so far “continued to confound the commentators” by withstanding the referendum shock. The economy is on course to grow by 2.0 percent in 2017, up from a forecast of 1.4 percent made in November, according to official forecasts.