Theresa May continues to battle to leave Europe, whereas Liverpool kept one foot firmly in the continent after last night’s historic performance. While the drama unfolded in Anfield, Labour MPs came out ridiculing the lauded customs arrangement after cross-party talks showed the PM wouldn’t budge on a confirmatory vote, for now at least. Also in Brexit; after coming under pressure from the 1922 committee to set out a faster departure timetable, preferably before Parliament breaks for summer in late July, the Prime Minister set a new exit date for the UK on August first. Not only does this mean the UK would have to partake in Parliamentary elections, but it could also see May remain in power coming into the September Conservative party conference. This will ruffle some feathers with the backbenchers and could increase the price set on the PM’s political scalp. Regardless of the Brexit news flow coming in thick and fast, sterling remained suppressed as nothing concrete regarding Brexit was confirmed. Today is Prime Minister Questions at lunchtime, but given cross-party talks are steadily evolving, it is likely to be a drama-free event as the two largest parties refrain from discussing Brexit.


The single currency is on the offensive this morning after German manufacturing sector output data took all bookies by surprise. March Industrial Production increased by 0.5%, making the 0.5% expected contraction pale in comparison. The decent figure is mostly driven by higher activity in the construction sector, the pillar of the economy that may offer some upside risks for German Q1 Gross Domestic Product released next week. The European Commission’s tri-annual Growth Forecasts published yesterday proved to be a bit of a mixed bag for the single currency. At one hand the EC report argues German growth will slow down to a snail’s pace of 0.5%, although it is more optimistic about Eurozone growth prospects in the second half of this year. The EC expects 1.4% growth for this year, which is higher than the 1.1% penned in by the European Central Bank -signalling upside risks to monetary policy. Today sees the ECB Meeting Accounts at 12:30 as the major data release, while France enjoys a bank holiday.


The US dollar had another strong day yesterday, only notably posting losses against AUD after the Reserve Bank of Australia defied market expectations and held rates. Also, JPY managed to benefit from the risk-off mood, while the South African rand strengthened after a poll from Ipsos showed high levels of support for President Ramaphosa in today’s election. Tensions continued to simmer between the US and China after Sunday’s tweet and many investors looked at Trump’s threat as a means of squeezing the last bits out of China before the final deal is struck. The Vice Commerce Minister Wang Shouwen and Vice Finance Minister Liao Min will travel to Washington today to prepare talks ahead of the Vice Premier Liu He’s arrival tomorrow. With Friday’s deadline looming, US trade negotiators are still holding out on a publication of the trade deal and a pledge by China to change laws and regulations over intellectual property theft and subsidies. This has been framed as an attack on China’s sovereignty, and should the US not back down, it looks unlikely that this game of brinkmanship will cease prior to Friday. Many trade analysts argue that the thawing of the cold trade war could set the timeline back into next year for a formal deal. The focus on trade tensions even negated the impact of Fed Vice Chairman Clarida’s comments yesterday, who calmed nerves over a potential interest rate cut. With little data out, investors will keep a close eye on how trade talks progress.


The loonie felt the spillover effects from heightened US trade tensions yesterday, with MXN also selling off. The USMCA deal, which was struck by Trump as a NAFTA replacement, is yet to pass through Congress and with trade back in the Trump administration’s focus the new deal may be in the firing line. Oil prices also continued to fall, which didn’t help the Canadian dollar stem any losses. Despite this, USDCAD is almost back at yesterday’s opening level this morning with oil prices rebounding after a larger than expected headline crude inventory build in the latest API inventory estimate.

FX Elsewhere

The Reserve Bank of New Zealand shared a taste of what may be to come from other G10 central banks, as it was the first of the G10 central banks that cut rates since 2016. The 25 basis points cut came as a surprise to many as Gross Domestic Product growth remains solid at an annual rate of 2.3% over 2018, while unemployment resides near decade lows at 4.2%. The justification for the cut given by the RBNZ is the softness in consumer prices, with inflation at an annual rate of 1.5%. This still falls within the RBNZ target inflation band of 1-3%, which suggests the RNBZ seeks to get in front of a potential economic slowdown later. The RBNZ is, of course, one of the smaller banks of the G10, however, as the Federal Reserve finds itself in a similar situation, this may set an example of what the Fed may do later this year.