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News in Brief - 27/06/2017

GBP

Monex  
 

Aside from one minor wobble in the middle of the session, sterling was again quite stable against USD and EUR yesterday. Politically, the major headline stemmed from news that the Conservative Party finally managed to strike a deal with the Democratic Unionist Party, which enables the Conservative’s to stay in power as a minority government. The price negotiated for the support of the DUP’s ten elected parliament ministers for Prime Minister Theresa May’s continued premiership will be one billion pounds of extra funding for the province. The deal is somewhat controversial, with British newspapers highlighting that the sum is equivalent to the annual salary of around 12,000 NHS doctors, or sprinklers for 600 tower blocks. Today at 09:30 BST, the Bank of England’s latest Financial Stability Report will be released, followed by a Press Conference given by Mark Carney at 11:00.

EUR

The euro saw some short lived strength against USD yesterday, but is currently trading within spitting distance of yesterday’s open after paring its gains. Controversy has continued in the wake of a deal by the Italian Government to bail out and liquidate two particularly troubled banks. The two banks balance sheets only represent some 2% of the Italian banking system, and the bailout will shield senior bond holders from losses- raising criticism of state-funded socialism for the rich, at a time when the Italian economy is still feeling the effects of the austerity following the last eurozone crisis. Yesterday’s data releases included the German IFO Business Climate, which hit a record high as the 7000 German businesses surveyed reported soaring economic activity and a strong outlook for the future. IFO’s President went as far as the call the survey “jubilant”. Today at 09:00 European Central Bank President Mario Draghi will speak in Portugal.

USD

The greenback continues its struggle against commodity currencies, with AUD, NZD and CAD all having risen at least 4% since the start of May. This has been particularly interesting given that the value of commodities themselves- most notably gold and oil- actually being under sell pressure over the past month. Elsewhere, however, there has been little significant movement, although there was a jitter of weakness in the wake of Durable Goods Orders, which fell well short of expectation and contracted on a month on month basis. USDJPY also hit a five week high on extremely bullish global risk appetite. Today at 14:00 BST the Case Shiller House Price Index will be released, followed at 15:00 by CB Consumer Confidence and the Richmond Manufacturing Index. Three Federal Reserve decision makers will speak this afternoon, with Harker speaking at 16:15, followed by Chair Yellen at 18:00 and Kashkari at 22:30.

 
 
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UK News- 27/06/2017

FT: Business groups say UK’s plans for EU nationals lack clarity Employers say proposals would lead to a new administrative burden. Business groups responded on Monday with frustration to the government’s proposals on EU citizens’ rights post-Brexit, which they said lacked the clarity employers needed and would lead to a big increase in the administrative burden on companies and individuals. “The announcement — which ranges from [the] government ‘wanting to’ to ‘intending to’ — will do nothing to ease the uncertainty of EU nationals and their employers,” said Tim Thomas, director of employment and skills at the EEF, which represents manufacturers.

News in Brief - 23/06/2017

GBP

After enjoying a slight bump this morning, sterling is trading almost unchanged compared to the start of the week against the euro and US dollar. Outgoing Bank of England Monetary Policy Committee member Kristin Forbes became the second senior decision maker to give an incendiary speech this week, last night blasting the Bank’s unwillingness to raise interest rates in a speech at the London Business School. Forbes has voted for a rate hike at the last three MPC meetings. The dissent on the MPC might be taken as a sign of acrimony or even dysfunction at the Bank of England by some pundits and media, but it’s worth remembering that the reason policy is made by a committee is precisely to allow robust discussion of difficult judgement calls such as those surrounding inflation risks. Looking ahead, the MPC’s August meeting is now a potential time for a hike, and incoming data, especially pertaining to inflation and wages, will be crucial over the coming months. Yesterday’s Industrial Order Expectations Index from the Confederation of British Industry showed order books at their strongest level since 1988, underlining just how positive sterling weakness has been for the manufacturing sector, which represents some 10% of the economy.

EUR

The euro has had an uneventful week overall, and the last 24 hours were no exception, with EURUSD regaining yesterday’s minor losses overnight. This morning’s data has included a smaller than expected fall in the German Manufacturing Purchasing Managers Index, which read 59.3 after 59.5 last month, indicating very robust growth in the sector. Eurozone Manufacturing Purchasing Managers data also performed very well, reading 57.3 for the month. Services PMIs for both releases were below expectations but in growth territory.

USD

The weighted dollar index DXY is on track for its best week since April, after hawkish comments from Federal Reserve decision makers over the course of the week have made it clear the Fed remains reasonably committed to further rate hikes.The move has seen the front end of the US yield curve higher, while the back end has fallen off somewhat, resulting in the kind of flattening normally associated with a hiking cycle. Weekly Unemployment Claims were once again low last week at just 241,000, while the Conference Board’s Leading Index of forward looking economic indicators rose 0.3% in May. Today at 14:45 BST the Manufacturing Services Purchasing Managers Index will be released, followed at 15:00 by New Home Sales.

UK News- 23/06/2017

FT: Theresa May offers to allow EU citizens to stay in UK post-Brexit Proposal made at Brussels summit includes scrapping 85-page residence application. A weakened Theresa May on Thursday night tried to regain the initiative on Brexit at a European summit in Brussels by making a “fair and serious” offer to guarantee the rights of 3m EU citizens living in Britain. The UK prime minister told fellow European leaders that no EU citizens living lawfully in Britain at the point it leaves the bloc in March 2019 would be asked to leave, nor would Brexit require families to be split up. Those who had lived in Britain for five years would have “settled status” and would be eligible to the same healthcare, pensions, benefits and education rights as British nationals. Details of the offer will be published on Monday.

Reuters: Who might move next? The Bank of England's rate-setters in focus Bank of England policymakers are increasingly split over the need to raise interest rates for the first time in a decade. A 5-3 vote last week in favour of keeping borrowing costs unchanged was closer than expected, and on Wednesday the BoE's chief economist surprised investors by saying he was close to voting for a rate hike too. Some Monetary Policy Committee members argue that rising inflation requires a hike, especially at a time when they believe the economy is running at close to full capacity. But the majority say slow wage growth and Brexit uncertainties justify keeping rates at a record low. Following is a summary of where MPC members stand in the debate which has caused big swings in the value of the pound in recent days. The next MPC decision is due on Aug. 3.

FT: ECB pushes to gain control of euro clearing business after Brexit Governing council of central bank calls for change in statute to give it more legal powers. The European Central Bank has made its strongest push yet to gain control of oversight of the lucrative business of euro clearing post-Brexit, with its top ranking governing council calling for a change to the bank’s statute to give it more legal powers to take on the role. Oversight of clearing has emerged as an important battleground in Brexit negotiations with the UK authorities, who fear London firms operating in the area will be forced to quit the City and move to the continent once ties with the EU are broken. The bulk of euro-denominated derivatives are now cleared in London, with the Bank of England currently responsible for oversight. However, the ECB has long been unhappy with the status quo and took its case to the European Court of Justice, arguing that the settlement of euro trades outside the EU left the single currency area exposed to a big financial stability risk. The ECB lost its case.

News in Brief - 22/06/2017

GBP

Theresa May’s bonfire of manifesto pledges actually turned out to be only the second most important event for sterling yesterday, which strengthened after a surprisingly hawkish speech from the Bank of England’s Chief Economist Andy Haldane. Haldane said that he may vote for a rate rise later this year, on the grounds that the sharp recent increase in inflation had changed the balance of risks associated with the decision to raise or hold rates. The risks of hiking “too late” had increased as a result, and so if current trends continues Haldane believed a hike would be necessary earlier than currently anticipated by markets. The comments stood in direct contrast to those made by Governor Mark Carney earlier this week, underlining the rising division within the BoE’s decision making Monetary Policy Committee. Elsewhere Theresa May’s Queen’s speech saw the abandonment of several high profile manifesto pledges, an unsurprising development given the chastening her party received at the ballot box. Today at 11:00 BST CBI Industrial Order Expectations data will be released, and outgoing MPC member Kristen Forbes will speak at 19:00.

EUR

Euro momentum began to build again yesterday, as EURUSD rose steadily throughout the day. Yesterday was sparse in terms of top tier data releases, as will also be the case today. The ECB’s latest Economic Bulletin was released at 09:00 BST, and will be followed at 15:00 by eurozone Consumer Confidence figures.

USD

Falling oil prices did little to boost the US dollar, which remained under pressure yesterday and weakened to sterling and the euro. The lone headline data release was Existing Home Sales, which were significantly higher than expectations at 5.62m in May. The US legislative process descended further into farce after Senate majority leader promised to release on Thursday healthcare legislation which has been negotiated in secrecy, despite criticism from lawmakers including Republicans. If the legislation is defeated for a second time, it will represent an embarrassing setback for the administration and its supporters in the legislature, and raise further questions about if Republicans can deliver the sweeping tax changes currently being touted in Congress. Today at 13:30 BST weekly Unemployment Claims data will be released, followed at 15:00 by the Conference Board’s leading index and a speech from the Fed’s Powell.

UK News- 22/06/2017

FT: Theresa May scraps manifesto pledges to clear path for Brexit Two-year battle to deliver legislation in a hung parliament. A chastened Theresa May was forced to ditch a series of Conservative manifesto promises on Wednesday, as she cleared the decks for a two-year fight to deliver Brexit in a hung parliament. Mrs May told MPs she would deliver the bills in the Queen’s Speech “with humility and resolve” after the disappointment of this month’s election, but her weakness was illustrated as she abandoned key parts of the Tory manifesto. The speech delivered by the monarch at the State Opening of Parliament instead contained eight major Brexit bills, after new fears that the legislation could be held hostage by the SNP-controlled Scottish parliament.

Reuters: May will cut corporation tax to encourage economic growth Prime Minister Theresa May said on Wednesday her government would continue to cut corporation tax to encourage businesses to invest in Britain and help the economy grow. "If we're going to grasp the opportunities as we leave the European Union, we need to build a stronger economy," she told parliament after presenting her government's programme in the Queen's speech. "In this Queen's speech we will continue to improve the public finances and work towards getting our country back to living within its means ... and we will encourage businesses to grow and create jobs by continuing to cut corporation tax."

News in Brief - 20/06/2017

GBP

Sterling had a very quiet start to the week yesterday, trading in a very tight range against the euro, and retracing the small gains it had initially made against the US dollar. The pound has exploded in to life this morning though, dropping sharply as Mark Carney, the Bank of England Governor, gave a speech where he stated that he does not see the need for a rise in interest rates in the UK in the near future. Elsewhere, the first round of Brexit negotiations seem to have gone surprisingly smoothly. The UK had been petitioning that the terms of a trade deal with the European Union were negotiated at the same time as settling the divorce bill. The EU, conversely, wanted “substantial progress” on the divorce bill before entering trade negotiations. Despite the lead UK negotiator, David Davis, having predicted that this would be the “row of the summer”, the EU’s logic has appeared to have very quickly won through, eliminating the first of, albeit many, potential hurdles in the negotiations. Given that political uncertainty has been one of the heaviest factors weighing on the pound over recent months, the speed of which this issue has been addressed provides some small shoots of optimism.

EUR

The euro saw little action against sterling yesterday, though lost half a percentage point against the USD due to dollar strength. The German Producer Price Index showed a 0.2% month on month decrease this morning, slightly lower than the 0.1% decrease which was expected. Jens Weidmann, president of the Deutsche Bundesbank, spoke yesterday and praised the willingness of newly elected French president Emmanuel Macron to reform the economy. These respectful words and well-aligned Franco-German relations were a welcome showcase of the increased political peace, which turbulent election campaigns in France and the Netherlands had threatened earlier this year. Today at 9:00 BST we welcome the Eurozone Current Account numbers of April which will tell us all about the state of the European Trade Balance.

USD

Federal Reserve Bank of New York President William Dudley, a voting member of the Fed’s interest rate setting Open Market Committee, put himself on the same side as Fed Chair Janet Yellen yesterday, stating that he also expects inflation to rise due to the currently tight labour market in the US. The increased bullishness of Fed members regarding further interest rate hikes helped the dollar rally against most of its major counterparts by end of the day. Today we have the Quarterly Current account coming out, expected to have an increased deficit. Today, we will also hear from fellow FOMC voting members Kaplan and Fischer.

News in Brief - 16/06/2017

GBP

Sterling strengthened substantially against the euro yesterday, while making smaller gains versus the US dollar. May’s Retail Sales figures strong suggested that consumer spending in the UK is suffering from a substantial slowdown, as headline sales fell 1.2% on the month compared to a bumper April that included Easter. However sterling rallied in the afternoon after meeting minutes from the Bank of England’s Monetary Policy Committee showed that three members had voted for rate hikes at this week’s meeting. Although the dovish majority on the Committee remained intact, the fact that three members saw fit to raise rates immediately suggests the BoE is less committed to its policy of “looking through” the current inflationary shock than might have been previously expected.

EUR

The euro sold off slightly yesterday, after some weak French Consumer Price Index data set the tone for a soft day in General. French Consumer Prices changed 0.0% in May, less than even the 0.1% growth initially expected. News emerged that Greece and the federation of the world’s most lenient loan sharks had reached a deal on the next stages of the nation’s bailout. The road now appears to be clear for the next tranche of funding to be disbursed, enabling Greece to meet its upcoming other debt payments. The International Monetary Fund previously objected to participating in the bailout due to concerns about the sustainability of Greece’s debt pile, but these objections appear to have been overcome with a classic Brussels fudge where the Fund won’t actually distribute funds to Greece until it’s eurozone creditors provide more detail on debt relief. Today at 10:00 revised eurozone Consumer Price Index data will be released.

USD

USD was surprisingly resilient yesterday, after a week of bruising data releases. Weekly Initial Jobless Claims were lower than expected, while manufacturing surveys from the Philadelphia and New York Federal Reserves both beat expectations significantly. US Industrial Production changed 0.0% in May after a big jump in April, and the NAHB Housing Market Index fell slightly. Today at 13:30 BST monthly Building Permits and Housing Starts data will be released, followed at 15:00 by University of Michigan Consumer Sentiment and Inflation Expectations surveys.

UK News - 16/06/2017

FT: Greece and creditors reach deal on next part of bailout Europe to release €8.5bn but debt relief decision put off. Greece and its international creditors have reached a deal on the next stages of Athens’ €86bn bailout, removing the risk that it could default on more than €7bn in debt repayments that fall due next month. The deal ends months of uncertainty that have weighed on Greece’s recovery and spooked investors, allowing the country to secure money it badly needs while putting off difficult discussions on debt relief. Jeroen Dijsselbloem, the Dutch finance minister who chaired the meeting, said the outcome was “a major step forward” that would help put Greece’s economy on a sounder footing.

Reuters: Bank of England shocks markets with close vote on rate hike The Bank of England shocked financial markets on Thursday when it said three of its policymakers voted for an interest rate hike, the closest it has come to raising rates since 2007, despite signs of a slowdown in Britain's economy. The unexpectedly tight 5-3 vote adds questions over monetary policy to uncertainty over Britain's political outlook since Prime Minister Theresa May failed to win a parliamentary majority in an election last week. BoE policymakers Ian McCafferty and Michael Saunders joined previous rate rise advocate Kristin Forbes in voting to reverse the BoE's decision last August to cut rates to a record-low 0.25 percent, the BoE said. Governor Mark Carney and the four other members of the Monetary Policy Committee voted to leave rates unchanged.

News in Brief - 15/06/2017

GBP

Sterling saw a lot of intraday volatility against the euro and the dollar yesterday, but ultimately closed very near to where it opened. Yesterday’s main release was labour market data from the ONS, which showed that although the Unemployment Rate remained exceptionally low at just 4.6%, growth in the Average Earnings Index had slowed to 2.1% for the three months ended June, compared to the same period a year ago. This left real wage growth at -0.6% over the same period, which is worrisome considering the modest slowdown seen in real wage growth earlier this year resulted in a sharp slowdown in consumer spending. Real wages were higher in 2008 than they are today, a particularly damning outcome for the economic and social policy of the last decade. Today at 09:30 BST, the latest Retail Sales figures will be released, with most forecasters expecting a contraction.

EUR

The euro also closed more or less flat vs USD yesterday, but saw one large and short lived intraday swing to the upside. Germany’s Consumer Price Index was confirmed to have contracted 0.2% in May, while eurozone Industrial Production rose 0.5% in April, and quarterly labour market data showed Employment had increased 0.4% in the first quarter. French CPI changed 0.0% in May, and at 10:00 BST the latest Eurozone Trade Balance figures will be released.

USD

The dollar took a drubbing yesterday afternoon in the wake of poor Retail Sales and inflation figures, but a rate hike from the Federal Reserve reversed the losses later in the session. The Consumer Price Index contracted 0.1% in May, taking year on year inflation to 1.9%, down from 2.2% previously. Retail sales also contracted by 0.3%, the biggest monthly drop in 16 months. The Federal Reserve’s rate setting Federal Open Market Committee, however, was confident enough that the current slowdown in inflation will prove temporary to raise interest rates last night. The Federal Funds Rate’s target range was boosted 25 basis points, to 1-1.25%. Chair Janet Yellen and the rest of the FOMC did make it clear they were watching the current inflation slowdown “closely”. The current view of the committee appears to be that the slowdown is due to transitory factors such as changes in prices for prescription drugs and phone services. The statement accompanying the decision also mentioned that the Fed expected to begin to normalise its balance sheet at some stage in the future, a further act of monetary tightening. Today at 13:30 BST weekly Unemployment Claims will be released alongside survey data from the New York and Philadelphia Federal Reserves, followed at 14:15 by Industrial Production data.

UK News - 15/06/2017

FT: UK plans ‘very generous’ offer to 3m EU citizens Brexit talks opening gambit with Davis reported angry at talk of chaos in department. The UK Brexit secretary David Davis will start talks in Brussels next week with plans to make a “very generous” offer on rights for the 3m EU citizens living in the UK and with officials insisting Britain enters the negotiations with “head held high”. British officials will travel to Brussels on Thursday hoping to finalise arrangements for the start of formal talks on Monday and Mr Davis is said by colleagues to be “determined to get started”. The UK’s offer to EU nationals living in Britain will guarantee them the rights they currently have and aim to treat them “as fairly as they have been to this point”, according to Whitehall officials. Britain wants the cut-off point for citizens’ rights to be March 29 this year, when the UK notified its intention to leave the EU, but is expected to accede to EU demands that the date should be Brexit day itself in 2019.

Reuters: Hard or soft Brexit aside, pound nervous of economic slowdown Last week's shocking British election result and the period of political uncertainty that looks set to follow may have come at the worst of times for the country's economy and the value of the pound sterling. Until 10 p.m. London time last Thursday, Prime Minister Theresa May's decision to call the snap poll did not look like a pivotal point for the most-sold major currency of last year. Sterling lost almost a fifth of its value between June 2016, when Britons voted to leave the European Union, and November. Many had begun to assume that would be the full extent of the "Brexit discount" demanded by overseas investors to keep faith with the world's fifth-largest economy. But May's loss of her majority drove a 2 percent fall in the pound on Friday and another 1 percent on Monday, and traders now say the election could prove another turning point for sterling.

News in Brief - 13/06/2017

GBP

Sterling took a significant step lower yesterday, as the political uncertainty in the UK continues to rumble on. Despite this, embattled Conservative leader Theresa May did receive a significant boost, as it became clear that she still retains the confidence of the Conservative Party. During a meeting of the party’s “1922 Committee”- an influential collection of backbench MP’s- a contrite May was reportedly given three independent standing ovations. As a result, May can be considered to have the green light to try and finalise the details of a minority Government, and in order to do so she is set to meet the leader of the Democratic Unionist Party, Arlene Foster, today. Long term, this current uncertainty may ultimately have a positive effect on the pound: the prospect of the markets much-feared “hard Brexit” is increasingly seeming a thing of the past, and the Tories are now expected to drop the “no deal is better than a bad deal” mantra, in a bid to appease her prospective DUP bedfellows. This week’s busy and high impact sterling data calendar begins today, with the release of monthly Consumer Price Index data. The Bank of England has been quite sanguine in the fact of the current inflationary surge hitting the economy, but has also been clear that there are limits to its patience. Every inflation release is therefore crucial; if year on year inflation begins to threaten the BoE’s forecast peak at around 3%, the prospect of intervention will begin to loom. Inflation data will be released at 09:30 BST.

EUR

EURUSD saw a brief burst of strength yesterday afternoon that quickly dissipated, and is currently trading below yesterday’s open. Yesterday’s data included a sharp contraction in Italian Industrial Production, which fell 0.4% in April, erasing March’s gains. This morning the German Wholesale Price Index was reported to have contracted 0.7%, and at 10:00 BST the widely followed ZEW Economic Sentiment survey will be released. The survey’s large sample size of institutional investors and analysts mean it is a good measure of investor confidence, especially the Germany sub index. The European Central Bank’s chief hawk, Jens Weidman, will speak at 09:10.

USD

There were few fireworks in USD trading yesterday, with losses versus CAD balancing gains versus sterling. The data calendar was quiet and the news cycle unusually devoid of controversy. Today at 11:00 BST the NFIB Small Business Index will be released, followed at 13:30 by the Producer Price Index. Attorney General Jeff Sessions will testify today to the Senate intelligence committee regarding ongoing investigations into Russian interference in the US election, beginning at 7:30 BST.

UK News - 13/06/2017

FT: Theresa May apologises to colleagues for election disaster Theresa May has apologised to Conservative MPs for her disastrous general election campaign that left her without a Commons majority and facing new Tory divisions on Europe, declaring: “I got us into this mess and I’m going to get us out of it.” Mrs May was said to have been “contrite” as she faced Tory colleagues for the first time since the election but she promised to fight on to deliver Brexit. “It’s my fault and I take responsibility,” she told a closed-door meeting on Monday evening, according to people who were in attendance. “I’ll stay as long as you want me to.”

Rueters: Likelihood of hard Brexit recedes after UK election The chances of Britain ending up outside the single market when Brexit talks are concluded have receded somewhat after last week's election, although the pound might weaken further against other currencies, a Reuters poll of economists found. Ahead of the election, Prime Minister Theresa May had been expected to win a landslide victory - an outcome Reuters polls had predicted would be best for both sterling and Brexit talks - but as voting day approached those opinion polls narrowed. In the end, May's Tory party failed to win a majority in parliament, prompting calls for her plan to leave the EU's single market to be watered down and leading some rival lawmakers to demand the Brexit process be delayed. Droves of newly registered young voters - many of whom voted to stay in the EU - backed the opposition Labour Party, scuppering May's hopes of a walkover win.

News in Brief - 12/06/2017

GBP

Friday’s momentous political events continue to have a muted effect on sterling this morning, with sterling trading comfortably above Friday’s lows against EUR and USD, but well below the levels seen before it became clear that Conservative leader Theresa May’s election campaign had cost the Tories their Parliamentary majority. Worse still, confusion reigned as Theresa May released a statement that she had agreed to form a minority government with the support of the Democratic Unionist Party of Northern Ireland, only for the DUP to force her to retract the announcement, claiming that talks had merely been “positive” rather than an agreement in place. With the influential 1922 Committee of backbench Tory MP’s set to meet today to discuss May’s future, speculation remains rife about the possibility of May’s resignation, with former Chancellor, and current Evening Standard editor, George Osborne exacerbating May’s troubles by referring to the Prime Minister as a “dead woman walking”. Her resignation seems unlikely; one of the biggest criticisms May had previously faced is that she had only inherited former PM David Cameron’s parliamentary majority, not earned her own, and thus if she is able to form a government, it seems improbable that she wouldn’t want to lead it. Moreover, there appears little appetite in the Conservative party for another leadership election, nor in the general public for another election, given that it’d be the fourth national poll in the past two years. Amidst this political turbulence, this week’s economic data will be extremely important for sterling, with the Consumer Price Index due for release tomorrow, followed by Labour Market data on Wednesday and Retail Sales on Thursday. As if this and the ongoing political developments weren’t enough, the Bank of England’s latest policy decision will also be released on Thursday.

EUR

The euro stabilised after some early losses on Friday, and made further gains versus USD overnight. The weekend’s biggest news was that French President Emmanuel Macron appears set to win a thumping legislative majority in French elections, with exit polls suggesting the centrist’s brand new En Marche party could control up to 70% of seats in the National Assembly. The onus will now be on Macron to finally reform France’s economy, particularly the labour market. Italian Industrial Production data will be released at 09:00 BST, beginning a slow week for eurozone data that will nonetheless include Eurozone Industrial Production on Wednesday and the Consumer Price Index on Friday.

USD

USD had an uneventful week last week, with Donald Trump’s twitter account uncharacteristically uncontroversial. The calm is unlikely to last, this week’s calendar is jam packed with top tier events and releases. Producer Prices will be released on Tuesday, ahead of the Consumer Price Index and Retail Sales on Wednesday. The Federal Open Market Committee will announce their latest decision – quite probably a rate hike – on Wednesday evening. The second half of the week will see less action, although Industrial Production data will be out on Thursday followed by Building Permits on Friday.

UK News - 12/06/2017

FT: Theresa May faces party showdown after disastrous election UK premier to meet angry MPs as former chancellor brands her ‘dead woman walking’. Theresa May faces a showdown with newly-elected Conservative MPs on Monday as the British prime minister desperately attempts to shore up her position following claims by former chancellor George Osborne that she is “a dead woman walking”. One Tory MP said Mrs May would have to give “the performance of her life” if she is to reassure a traumatised party that she can carry on leading the country and deliver Brexit, in spite of throwing away her majority after a disastrous election campaign. There were signs that the Tory civil war on Europe was about to reignite, while Mrs May was still trying to negotiate a deal with Northern Ireland’s Democratic Unionist party to give her a majority in the House of Commons.

Reuters: UK business confidence slumps after election: IoD survey British business confidence has fallen sharply since last Thursday's inconclusive election that left Prime Minister Theresa May weakened ahead of Brexit talks, according to a survey by the Institute of Directors published on Monday. The survey of nearly 700 members of the business group also exposed deep concern over the political uncertainty and its impact on Britain's economy. May failed to win a parliamentary majority in the election. Her hopes of forming a government now lie with winning support from Northern Ireland's Democratic Unionist Party, which won 10 seats in the election. The IoD found a negative swing of 34 points in confidence in the UK economy from its last survey in May. While 20 percent of members were optimistic about the economy over the next 12 months, some 57 percent were either quite or very pessimistic - a -37 "net confidence" score. That compares with a -3 percent score in May.

News in Brief - 08/06/2017

GBP

Britons head to the polls in the busiest day of the week with regard to financial markets. Sterling has strengthened against EUR and USD over the last 24h, but the real challenge will start to be felt this evening after the first exit poll is released. Exit polls usually have a meaningful impact on markets, and sterling should react accordingly. Due to polls narrowing over the last couple of weeks, we would expect a relief rally in sterling if the Tories get a majority, as the base case for sterling strength after the announcement of the snap election in April is recouped. GBP rallied on the back of the announcement of the snap election in mid-April, as markets understood that a much stronger Tory government would be positive for Brexit negotiations. Should Labour win a majority or there is a hung parliament, we expect the pound to weaken abruptly. The first exit poll is announced at 22.00 BST.

EUR

The euro weakened yesterday after reports that the European Central Bank will downgrade the Eurozone’s inflation forecasts through 2019. The economic recovery of the single currency area is notable over the last two quarters, but inflation remains weak, at the same time inflation expectations have been weakening for most of the year. Nonetheless, several ECB officials have expressed their own view that the central bank should not maintain full accommodative monetary policy, which could have a significant presence in today’s press conference. Mario Draghi, President of the ECB, will speak at 14.30 BST.

USD

Despite some intraday volatility against the euro, USD was quite flat overall yesterday. Today’s data calendar will be reasonably quiet, with weekly Unemployment Claims at 13:30 BST the only release of note. However, testimony from sacked FBI director James Comey should provide at least some fodder for the news cycle and potentially some impetus for dollar volatility. Comey’s opening statement to lawmakers makes it clear that he intends to stand by previous reports that Trump had asked him for “loyalty” and seemingly pressured him to drop his investigation into National Security Advisor, Michael Flynn’s resignation. Today’s hearing at 15:00 should be interesting, making it relevant for USD and other markets.

UK News - 08/06/2017

FT: British voters go to the polls in general election 

Reuters: UK annual house price growth hits four-year low in May - Halifax British annual house price growth slid to a four-year low last month, underlining the housing market's slowdown since last year's Brexit vote, mortgage lender Halifax said on Wednesday. Average house prices in the three months to May were 3.3 percent higher than a year earlier, the weakest increase since May 2013 and slowing from a 3.8 percent rise in April. Economists in a Reuters poll had expected to see a somewhat sharper slowdown to 3.0 percent. In May alone, house prices were 0.4 percent higher than in April, confounding forecasts for 0.1 percent drop.

News in Brief - 07/06/2017

GBP

Sterling operates within a tight range ahead of this week's General Election. Narrowing polls over the last four weeks clearly had an impact on the currency, as these now appear to suggest that the outcome may not be as different from the 2015 elections. Sterling had initially rallied after the announcement of a snap election in mid-April as markets understood the Tories would consolidate a much stronger government. The first exit polls will be released tomorrow at 22.00 BST with the final result will being announced over the course of Friday morning.

EUR

The lack of action in the Eurozone this week and attention focused on tomorrow's European Central Bank meeting is weighing on the single currency, which remains near 9-month highs against USD. However, much weaker than expected industrial output figures in Spain and Germany and Italian retail sales are adding some pressure to the single currency.

USD

The US dollar index DXY reached a 9-month low yesterday after US 10-year yields fell to the lowest levels since the aftermath of the US elections. Weak economic indicators explain the drop in yields. The Personal Consumption Expenditure index eased for the third consecutive month last week, and wages followed the same fate. As a result, the Fed could refrain from anticipating more hikes, although we continue to expect the central bank to deliver an increase in the Fed funds next week.

UK News - 07/06/2017

FT: Theresa May ramps up anti-terror rhetoric in final election push.  PM seeks to quell criticism over security as confident Tories target Labour heartlands. Theresa May has vowed to restrict the freedom of movement of terror suspects, as she tried to allay criticism of her handling of the security threat ahead of a final push for votes in Thursday’s general election. Mrs May will on Wednesday embark on an eleventh-hour tour of closely fought Labour-held constituencies amid Conservative confidence that she is heading for a solid election victory in spite of a struggling campaign.

News in Brief - 06/06/2017

GBP

Sterling advanced yesterday, despite worse-than-expected services survey data in the UK. The latest figures of Markit’s Services PMI shrank again in June, barely two weeks before the Brexit negotiations begin. Sterling rallied in mid-April on the back of the announcement of snap elections, as markets anticipated the Conservative government winning a larger majority, which would give the government greater autonomy in the negotiations with the European Union. Should this scenario be challenged this week, GBP could quickly resume its recent downward trend. There will be no macroeconomic data until after the General Elections, hence sterling is expected to fluctuate as various opinion polls continue to drip through.

EUR

The euro unexpectedly retraced yesterday afternoon despite the lack of economic releases or headlines, and is falling again today against both USD and GBP. Markets are taking profit, and demand of euros is subdued, ahead of this week’s European Central Bank meeting in Estonia, as investors are reluctant to believe the ECB will change the tone with regard to monetary policy. However, such scenario cannot be entirely discarded as several members of the ECB have expressed their view on the necessity to reconsider the actual extent of liquidity addition in the eurozone.

USD

The dollar continues to suffer today as markets keep reassessing economic and interest rate expectations in the US, after last week’s poor labour market data. A general ‘risk-off’ move appears to be building up on the horizon, as the Japanese yen, a common safe haven, has reached a 6-week high against the greenback. Yesterday’s macroeconomic data, again, disappointed across the board, with worse-than-expected ISM non-manufacturing PMI, Markit services PMI, and unit labour costs.

UK News - 06/06/2017

EU negotiators steeled for post-election Brexit crisis UK negotiating team, Brexit bill and sequencing all key points of contention. EU negotiators are bracing themselves for a “big crisis” over Brexit soon after this week’s UK election, including a possible walkout as early as the summer or autumn. Alarmed by an election campaign that has stoked up tensions between UK and continental European leaders, Brussels is hoping for reassurances over Britain’s negotiating team and answers on whether the UK will reject outright the EU’s divorce-first timetable for talks. The negotiations could dominate the new British government’s time in office. The European Commission is expected to make contacts with London to organise the talks within days of the election on June 8.

Reuters: UK consumer stumbles in May as surveys show spending squeezed British shoppers kept a tighter grip on their credit cards last month as they felt growing pressure from rising inflation, new figures showed just two days before they vote on whether to keep Prime Minister Theresa May in power. With record numbers of people in work and public borrowing more manageable, the economy has played a smaller role in this election campaign than in 2010 and 2015, though the opposition Labour Party has stressed a growing squeeze on living standards. Official data for the first three months of 2017 showed that retail sales volumes fell by their most since 2010, and Tuesday's figures from the British Retail Consortium and Barclaycard point to further weakness. The BRC said total retail spending last month showed year-on-year growth of just 0.2 percent, after bumper growth of 6.3 percent in April when shoppers spent more over Easter.

News in Brief - 02/06/2017

GBP

Sterling had an uneventful day yesterday, as GBPUSD closed flat compared to open and GBPEUR moved marginally higher. Yesterday’s fundamental data included another month of price falls in the Nationwide House Price Index, marking the first consecutive three month run of price declines since 2009. The Manufacturing Purchasing Managers Index fell to 56.7, a marginal decline from previous levels. Today at 09:30 BST the equivalent index for the Construction sector will be released.

EUR

The euro pared Wednesday’s gains yesterday, as the possibility of early elections in Italy continues to be discussed in news headlines. Elections have been tabled by the ruling Democratic party for as early as Autumn, raising the prospect of yet more political uncertainty for the eurozone. Manufacturing Purchasing Managers Indices were solid across the euro zone yesterday, and little fundamental fata will be released today, apart from eurozone Producer Prices at 10:00 BST.

USD

The weighted US dollar Index, DXY, rallied slightly yesterday, having reached an area of support around the 97 level that market participants have been reluctant to trade the dollar below previously. Donald Trump withdrew the United States from the historic 2015 Paris climate agreement, to universal condemnation from world leaders and high profile business leaders. Interestingly enough, Trump made explicit mention of the tax bill he intends to pass through congress during his speech, suggesting that this potentially inflationary change in fiscal policy may indeed see the light of day. A raft of data was released yesterday, but largely overshadowed by the unfolding political story. Highlights included a solid print for the ADP Non-Farm Payrolls estimate, a higher than expected number for Initial Jobless Claims, and a big fall in Construction Spending. Today at 13:30 BST, the Non-Farm Payrolls report will be released. After last month’s disappointing wage figures, the focus will be on if pay growth begins to accelerate again.

UK News - 02/06/2017

REUTERS: May's lead falls to 3 percentage points, YouGov poll shows a week before election. British Prime Minister Theresa May's gamble on a snap election was under question on Thursday after the latest opinion polls showed her Conservative Party's lead was dwindling just a week before voting begins.

News in Brief - 01/06/2017

GBP

Despite sterling having spent most of yesterday recovering ground, with polls contrastingly showing the Conservative Party either enjoying a large lead or a razor thin one against Labour, the pound once again came under pressure overnight. Whilst political risk is ostensibly increasing intraday volatility in the pound, attempting to draw overall conclusions about the currency effects of potential hypothetical election outcomes remains a fool’s errand. This morning, markets have the opportunity to see some concrete data regarding the health of the UK economy, as at 09:30 BST we have the release of the Manufacturing Purchasing Managers Index data. Notwithstanding the sector only having begun expanding again last September, and five of the past seven readings having been at or below market expectations, forecasts are for a robust 56.5 reading, which would be the second highest level in three years.

EUR

The euro once again enjoyed a relative lack of adverse headlines yesterday, and strengthened against USD. The day’s main economic release was eurozone Consumer Price Index inflation, which fell to 1.4% from 1.9% previously. The slowdown was well signposted by the European Central Bank, which viewed the jump to 1.9% as a transitory shock. Core inflation, which excludes volatile factors such as fuel, fell to 0.9%. Eurozone Unemployment continued to tick down, reaching 9.3%. Manufacturing Purchasing Managers Indices for European economies were released throughout the morning, with all of the major nations surveyed reporting solid growth in the sector. Eurozone Manufacturing PMI was unchanged from its last release at 57.0.

USD

On a day of sparse data releases USD came under broad pressure yesterday, with a decent print on the Chicago Purchasing Managers Index being counteracted by a large contraction in Pending Home Sales. Today’s calendar will be significantly more eventful: ADP’s estimate of Non-Farm Payrolls will be released at 13:15 BST, followed by Unit Labour Costs and Nonfarm Productivity and weekly Unemployment Claims at 13:30. Manufacturing Purchasing Managers Indices from Markit and ISM will be released at 14:45 and 15:00 respectively, the latter accompanied by Construction Spending data. Total Vehicle Sales, which have struggled in recent months, will also be released throughout the day.

UK News - 01/06/2017

DAILY MAIL: Cost of home loans tumbles to record low: Average rate for a two-year fixed deal is now just 1.26%. Homeowners are currently enjoying the cheapest mortgage rates on record, official figures have revealed. A bid to drum up business has seen a fierce rate war break out between some of Britain's biggest lenders.

News in Brief - 31/05/2017

GBP

Sterling traded lower overnight after the latest YouGov general election poll suggested that the Conservative Party may fall short of a majority in the upcoming elections. Despite this, stories about intraday moves in sterling due to polls and political stories should be taken with a large grain of salt. Although sterling did indeed strengthen when the General Election was announced, and weaken overnight, the overall effect of various possible election outcomes is not by any means clear. Sterling was already strengthening before the General election was announced, and indeed the latest downturn in the pound could also be equally driven by deteriorating fundamental data. In the run up to the Brexit referendum, sterling traded with a clear negative correlation to the chances of a vote to leave. No such link can be seen in betting odds of a Conservative majority, and it is entirely plausible, as argued by JP Morgan analysts recently, that a hung parliament could ultimately be a sterling friendly outcome due to increasing the odds of a “soft” Brexit. For now, it certainly does seem like additional election uncertainty is acting as a risk for sterling, but extreme caution should be taken in trying to auger a sterling outcome from the various possible election results.

EUR

After a dip earlier in the day on dovish comments from the European Central Bank’s Mario Draghi, the euro quickly regained momentum off the back of reports that the ECB will upgrade its assessment of economic risk at next month’s meeting. Such an upgrade would make sense: economic conditions are indeed improving in the eurozone, but the question remains how committed the ECB is to its current easing programme. Yesterday’s data included a weak print for the German Consumer Price Index, which shrunk 0.2% in May. German Retail Sales data this morning showed sales falling by the same amount, while French CPI rose 0.1%, less than expected. Eurozone CPI data will be released at 10:00 BST, and will be closely watched to see if last month’s sharp increase unwinds. Unemployment will also be released at 10:00.

USD

USD weakened to the euro yesterday but remains on the offensive against sterling. Yesterday’s data contained few surprises, with the Core Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, rose 0.2% after contracting in March. Personal Spending and Income also rose as expected, while house price growth, as measures by the Case Shiller Index, accelerated to a three year high. Despite the mild improvement in inflation, yesterday’s figures may not be enough to dispel concerns about a slowdown in price growth. Influential Federal Reserve Governor Lael Brainard said as much in New York, arguing that although another rate hike would probably be needed soon, if weak inflation persists the Fed’s hiking path may need to be reconsidered. Today at 13:00 BST Brainard’s Fed colleague Kaplan will speak, and at 14:45 the Chicago Purchasing Managers Index will be released.

UK News - 31/05/2017

INDEPENDENT: Tories to fall short of outright majority and face hung parliament, new poll analysis predicts. Britain could be on course for a hung parliament in nine days’ time, according to a new projection that suggests the Conservatives could fall 16 seats short of an overall majority. The seat-by-seat prediction by YouGov for The Times suggests that the Conservatives are on course to win 310 seats at the election – short of an absolute majority of 326 seats needed to form a Government.

GUARDIAN: Police believe Manchester bomber Salman Abedi largely acted alone. Police now believe the Manchester bomber acted largely alone in the run-up to his suicide attack at Ariana Grande’s concert. Soon after Salman Abedi blew himself up at Manchester Arena eight days ago police said they were investigating a potential terror “network”. But now detectives say the 22-year-old shopped alone for most of the components he used to make the bomb, which killed himself and 22 concertgoers on 22 May and injured 116 more.

News in Brief - 30/05/2017

GBP

Sterling strengthened slightly over the course of the May Bank Holiday, and managed to hold on to its progress against the euro while falling back against USD. In lieu of a direct debate between Theresa May and Jeremy Corbyn, both were interviewed by Jeremy Paxman and subjected to something resembling robust questioning. Neither were truly pushed on their key areas of weakness, with Corbyn evading questions on defence and May providing her usual soundbite soup on issues such as social care and policing. Sterling did indeed wobble at the same time as opinion polls began to narrow last week, possibly suggesting that concern of a larger than expected turnout for Labour weighed on the pound, although the effect was not clear enough to draw this conclusion with certainty. This will be a slow week for UK data, with no releases scheduled today.

EUR

The euro continued to fall this morning after comments from Mario Draghi to European lawmakers put the single currency on the defensive yesterday. Draghi’s message was nothing new; the European Central Bank President simple reiterated earlier statements about the need for an “extraordinary amount of monetary policy support” for inflation in the eurozone. This morning has already seen the release of German Import Prices, which fell 0.1%, French Gross Domestic Product Growth, which beat expectations to rise to 0.4% for Q1, and the Spanish Consumer Price Index, which saw year on year inflation fall to 1.9%, from 2.6% previously.

USD

USD saw a burst of strength overnight after yesterday’s Memorial Day bank holiday. The US data calendar is eventful this week, beginning with today’s Personal Consumption Expenditures Price Index at 13:30 BST. Inflation has fallen short of expectations in recent months, and although the Federal Reserve has indicated it is confident price growth will rebound, today’s release will be closely watched and a further slowdown in inflation could hit the dollar. Later in the week Manufacturing Purchasing Managers Indices will be released on Thursday, ahead of Friday’s Non-Farm Payrolls report.

News in Brief - 26/05/2017

GBP

Sterling took another step down overnight, after Gross Domestic Product growth was revised downwards, and the latest polling data showed the Conservative Party’s lead in General Election polling had narrowed. There was little good news in revised GDP data for Q1 released yesterday, which reckoned growth to be at just 0.2%. There is a good chance growth picked up in the second quarter, but with falling real wages and dubious consumer spending, nothing can be taken for granted. The latest YouGov poll overnight showed the Conservatives at 44%, compared to 35% for Labour. The weight of pundit opinion is that an upset, or even anything short of a bloodbath, is impossible for the Labour party. But as last night’s price action shows, we’ve heard similar assurances about the impossibility of electoral disruption several times over the last couple of years.

EUR

The euro has shown about as much energy as a sedated sloth this week, and yesterday was no exception, with the single currency ekeing out some further marginal gains versus sterling overnight. No data was released yesterday and many nations enjoyed Ascension day holidays. News reporters focussed, among other things, on the firmness of French President Emanuele Macron’s handshake with a certain manually challenged demagogue at yesterday’s NATO summit. No euro data will be released today.

USD

USD enjoyed a small bump yesterday in a broad sense, but has struggled against EUR and JPY overnight. Yesterday’s economic data was largely inconsequential, with weekly Unemployment Claims once again exceptionally low, and Wholesale Inventories contracting in April. Today’s data will be more substantial; Durable Goods orders will be released at 13:30 BST alongside revised Gross Domestic Product growth.

UK News - 26/05/2017

FT: FBI investigates Jared Kushner’s Russia ties. Probe into links between Trump campaign and Moscow reaches US president’s son-in-law. The US Federal Bureau of Investigation is looking into connections between Donald Trump’s son-in-law Jared Kushner and Russia, in a sign that the probe into contacts between Trump campaign aides and Russian officials has moved closer to the White House.

Reuters: UK mortgage approvals slip in April, consumer borrowing speeds up - BBA May 25 British banks approved the fewest mortgages in five months in April and the value of home loans grew at the slowest pace since August, industry figures showed, adding to signs of a slowdown in the housing market. The figures from the British Banking Association also showed growth in consumer borrowing picked up a bit of pace last month as shoppers spent more on food over the Easter holidays. Britain's economy grew strongly last year, but rising inflation since the Brexit vote in June 2016 has started to weaken consumer demand and house prices are rising more slowly.

News in Brief - 25/05/2017

GBP

Sterling traded almost flat against USD yesterday, as G10 GX volatility was subdued across the board, with few exceptions. General election campaigning is expected to resume over the course of today and tomorrow, with Theresa May heading to a NATO summit, where she is expected to rebuke US officials for the leaking of sensitive information pertaining to investigation of the Manchester bombing. The UK data calendar will also resume today, with the release of revised Gross Domestic Product growth for the first quarter, alongside indices for Business Investment and Services. Business Investment is expected to pick up after the 0.9% contraction seen at the last reading, with risks tilted strongly to the downside for sterling in the event of a miss.

EUR

The euro had an uneventful day yesterday, recouping Tuesday’s losses against USD after the release of the minutes from the most recent US Federal Reserve meeting. Data was light on the ground, although GfK German Consumer Climate, a prominent measure of consumer confidence in Germany, was released at 10.4, a slight increase for the index compared to last month’s release, underlining the sustained strength of the German economy. Yet again, European Central Bank President Mario Draghi pushed back strongly against any suggestions that the ECB should be looking to tighten policy sooner rather than later in a speech in Madrid. Next month’s Governing Council meeting stands out as a major event for the ECB, as a recent improvement in inflation data is likely to embolden members who believe the time is approaching for QE to end. No eurozone data will be released today, and a number of countries enjoy bank holidays for Ascension day.

USD

USD weakened in the wake of yesterday’s Federal Open Market Committee minutes, despite the Fed signalling fairly clearly that members were happy raising rates in the near future, possibly as early as June. The key judgement in the Fed’s recent meeting was that the current slowdown in growth in the US economy would prove transitory, and there was little evidence of serious dissent to this view. Members were similarly willing to look through the current slowdown in inflation, although further increases in rates beyond the immediate future is likely contingent upon an improvement in these figures. The minutes also acknowledged the sword of Damocles hanging over global markets – that a “highly simulative” fiscal policy under current economic circumstances would mean the Fed’s current gentle path of hikes would need to be reassessed. Today at 13:30 BST weekly Unemployment Claims will be released alongside Goods Trade Balance and Wholesale Inventories.

UK News - 25/05/2017

FT: Fed close to pulling the trigger on June rate rise Central bank prepares to pare back balance sheet. The Federal Reserve signalled that it is close to pulling the trigger on another rise in short-term interest rates and is preparing to begin paring back its multi-trillion dollar asset holdings this year as the US economy recovers. Most Fed policymakers said at the May 2-3 rate-setting meeting that a further increase in short-term interest rates will be needed “soon” if the economy stays on track, in a sign it is preparing to tighten policy again as early as the June meeting.

Reuters: UK inflation expectations edge up, little pressure on BoE The British public's expectations for inflation over the next 12 months rose slightly this month but remained within the tight range of the past six months, a survey for Citi by polling company YouGov showed on Wednesday. "Stable short-term expectations show that the current spike in inflation is not self-reinforcing," Citi economists wrote in a note to clients. "There is no urgency to hike rates, in our view, and we expect the majority (of Bank of England policymakers) to avoid premature monetary tightening, given the economic risks." Citi said year-ahead inflation expectations increased to 2.6 percent from April's reading of 2.5 percent, lagging behind a sharper increase in the official measure of headline consumer price inflation which hit a three-year high of 2.7 percent.

News in Brief - 24/05/2017

GBP

Sterling remains under pressure against USD this morning, as the nation’s terror threat level has been raised to “critical”, only the third time this step has been taken. It is worth noting that no general sell off has set in for the pound, which was able to take advantage of yesterday’s euro sell off to strengthen against the single currency. General election campaigning remains suspended, with the main focus of investigative efforts believed to be on establishing if Monday night’s attacker acted alone. No major sterling data will be released today.

EUR

The euro finally pared back some of the explosive gains it has seen over the last couple of weeks yesterday, selling off against USD and GBP. Yesterday’s economic data were actually very positive, with European Purchasing Managers indices rising further into growth territory and the German IFO Business Climate survey rose to its highest level since 1991. German Finance Minister Wolfgang Schauble made comments echoing Angela Merkel’s criticism of the effects of loose monetary policy on the German economy, although Schauble did acknowledge the European Central Bank’s independence and that they would not be seeking his advice. The subject of Schauble’s ire, ECB President Mario Draghi, will speak today at 14:35 BST.

USD

After a rough start to the week USD showed signs of life yesterday, finally rallying against the euro despite an afternoon of mixed data releases. Markit’s Services Purchasing Managers Index rose further into positives, but its equivalent for the Manufacturing sector fell slightly, while another survey based index, the Richmond Manufacturing Index, fell sharply and New Home Sales contracted after a surge in March. The Turmp administration also released more details about its proposed budget yesterday, featuring some extraordinarily sharp spending cuts to complement its aggressive tax reductions. Today’s main release will be the latest meeting minutes from the Federal Reserve at 19:00 BST. Minutes rarely signal a headline change in Fed policy, but the release will nonetheless be a test of if the Fed’s earlier suggestions of up to three more rate hikes this year remain credible.

UK News - 24/05/2017

FT: China’s sovereign debt downgraded by Moody’s Beijing condemns rating agency decision that could curb foreign appetite for bonds. China’s finance ministry chastised Moody’s on Wednesday after the US rating agency downgraded Beijing’s sovereign credit rating, highlighting investor concerns over rising debt and the slow pace of economic reforms intended to transform the country’s growth model. “Moody’s has overestimated the difficulties faced by China’s economy and underestimated the government’s ability to deepen reforms,” the ministry said in response to the downgrade, which initially rattled China’s stock markets and currency.

Reuters: UK's consumer slowdown ripples through Britain's economy The Brexit squeeze on British consumers has hurt the government's finances as well as retailers, data showed on Tuesday, indicating that the economy's slowdown at the start of the year is now being felt more broadly. A stalling of sales tax revenues, a barometer of the economy, helped to widen Britain's budget deficit by more than expected, official data showed. A separate survey showed business confidence among retailers declined at the fastest pace since 2012, around the last time Britain flirted with recession.

News in Brief - 23/05/2017

GBP

Sterling is trading down slightly this morning, as last night’s tragic suspected terror attack in Manchester has triggered a minor bout of risk aversion. General Election campaigning has been suspended, and the news cycle is likely to be dominated by coverage of the attack. Senior Bank of England decision makers are scheduled to testify to lawmakers from Parliament’s Treasury Committee today at 10:00 BST.

EUR

The euro saw yet another day of gains yesterday, this time triggered by the clearest yet statement from a major European leader against the ECB’s current, loose stance of monetary policy. Angela Merkel, speaking to a group of schoolchildren, said that Germany’s large current account surplus was due to the euro being “too weak” due to ECB policy. To her credit, Merkel did also add that bolstering domestic consumption was the best way to address imbalances with countries like France. The finer points of how credible or justified Merkel’s statements are is irrelevant – what matters is that this is another public statement of opposition to the ECB’s policies, and from Europe’s most powerful leader. Services and Manufacturing Purchasing Managers Indices were released this morning in the eurozone, with manufacturing output beating expectations and services missing expectations marginally.

USD

Yesterday saw more losses for the US dollar, and a flurry of mostly inconsequential speeches from Federal Reserve decision makers such as Harker and Kashkari. Kashkari will speak again this afternoon at 14:00 BST, followed by Manufacturing and Services Purchasing Managers’ Indices at 14:45, and the survey based Richmond Manufacturing Index, which will be released alongside New Home Sales at 15:00.

UK News - 23/05/2017

FT: Terror attack kills 22 in Manchester explosion A man armed with an “improvised” bomb has killed at least 22 people and injured 59 outside a concert arena filled with teenagers in central Manchester on Monday night, in the worst terrorism incident in the UK since 2005. Police said the bomber, who died in the explosion, detonated the device shortly after the end of a concert by US pop star Ariana Grande around 10.30pm, adding the northern English city to the growing list of recent western targets that includes Paris, Stockholm, London and Berlin.

FT: EU ministers agree tough Brexit mandate Germany warns reality yet to ‘break through’, as UK and bloc take opposing positions. Germany warned that the reality of Brexit had yet to “break through” in London on Tuesday as the EU unanimously agreed an uncompromising negotiating mandate for exit talks. EU ministers endorsed 18 pages of legally binding instructions for the bloc’s chief negotiator Michel Barnier, who is aiming to start formal talks in the week beginning June 19, almost exactly a year after Britain’s referendum vote to leave the union.

News in Brief - 22/05/2017

GBP

Sterling came under pressure on the Asian open last night, and is trading lower versus the US dollar and the euro. Last week’s dramatic mini “flash crash” for sterling proved that the pound remains capable of surprising bursts of volatility. The weekend’s political news focussed on the unpopularity of Theresa May’s “dementia tax”, whereby the Conservative Manifesto outlined plans for making those with more than £100,000 in assets pay for home social care visits. This morning’s data has included the Rightmove House Price Index, which recorded a fresh all-time high for national asking prices. Theresa May will speak to the BBC today at 19:00 in an interview. Tomorrow at 10:00 BST senior Bank of England officials will testify to lawmakers on the Bank’s latest Inflation Report.

EUR

The euro is trading only slightly shy of Friday’s highs versus the US dollar, which were the highest levels seen on EURUSD since September. Strong eurozone data and political uncertainty in the US remains a powerful driver for the single currency, although no eurozone fundamental data will be released until tomorrow’s Manufacturing and Services Purchasing Managers Indices. The eurogroup of finance ministers will meet today, with the latest debt deal between Greece and its European creditors in focus.

USD

After a furtive rally on Thursday, USD was again on the back foot at the end of last week, and has barely rallied this morning. After a slow week last week the US calendar picks up again this week, beginning with a torrent of speeches from the Federal Reserve, especially from Neel Kashkari who will speak some four times over the first half of the week, beginning today at 15:30. Kashkari’s Federal Open Market Committee colleagues Harker and Brainard will speak at 15:00 and 00:00 tomorrow respectively. Later in the week, minutes from the Federal Open Market Committee’s latest meeting will be released on Wednesday, followed by Durable Goods Orders on Friday.

UK News - 22/05/2017

GUARDIAN: Pound hit by 'dementia tax' backlash. The backlash against the PM’s proposals for social care, and opinion polls showing the Tory lead narrowing to nine points, is causing some anxiety in the City this morning.

DAILY MAIL: Hepatitis danger from Full English breakfast... caused by EU meat: Sausage bug has been dubbed ‘the Brexit virus’. Tens of thousands of people are being infected with a potentially deadly illness after eating imported meat riddled with what has been described as 'Brexit virus'. The strain of hepatitis E, which used to be mainly a tropical disease but has now mutated to infect livestock, causes a flu-like illness and in severe circumstances, could cause death.

News in Brief - 19/05/2017

GBP

Sterling strengthened in the immediate aftermath of yesterday’s strong retail sales data, but began to retreat almost immediately afterwards, and in a dramatic couple of minutes around 18:35 BST completely collapsed, erasing what was left of its gains. The move was reminiscent of last years “flash crash”, although not quite as pronounced, and did not seem to be triggered by any one event. Whether or not sterling can regain yesterday’s levels remains to be seen. April’s strong rebound in retail sales was hailed by many economists as a sign that UK consumer spending remained robust, and another month or two of good growth would indeed suggest that falling real wages have not yet dented the voracious appetite of the UK consumer. However, at this stage it’s far too early to make this call, especially considering that store prices appear set to increase further over the coming months. The data were also strongly affected by seasonal factors, such as the timing of Easter. Today at 11:00 BST the latest Industrial Orders data from the Confederation of British Industry will be released.

EUR

The euro weakened steadily against USD yesterday, but has rallied this morning. The European Central Bank’s latest meeting minutes were released yesterday, and showed just how cautious the Governing Council felt it needed to be about communicating any change to its outlook. Left unsaid was the motive for this caution: a desire to avoid rapid and undue euro appreciation at the mention of a potential tapering of the Bank’s Quantitative Easing Programme. This morning’s euro data has included faster than expected growth in German Producer Prices, and a larger than expected Current Account surplus for the eurozone as a whole.

USD

Yesterday evening’s drama with sterling triggered a minor USD rally that mostly dissipated overnight, leaving the weighted dollar index DXY only marginally above yesterday’s open. Weekly Unemployment Claims were low last week, at just 232,000, underlining the tight labour market. US Treasury Secretary Steven Mnuchin testified to lawmakers of the Senate Banking Committee, defending the administration’s fiscal estimates. The Trump budget has been criticised as fiscally negative to the tune of billions of dollars, but Mnuchin argued that these estimates ignored the higher growth that would be unleashed by tax cuts. The weight of empirical evidence and mainstream economic thought is heavily against Mnuchin’s position, to say the least, but yesterday’s testimony showed that the administration remained committed to its planned tax cuts. No headline US data will be released today - but to our knowledge Donald Trump remains in control of his twitter account.

UK News - 19/05/2017

FT: UK business reacts coldly to Conservative election manifesto Both the tone and detail of policy programme have been criticised. Businesses hoping for a smooth Brexit, deregulation, and a flexible labour market attacked the Conservative manifesto both for its policies and its tone. “This is not a pro-business manifesto,” said one senior business leader. “Theresa May gives little sign of listening to what companies need.” Adam Marshall, director-general of the British Chambers of Commerce, representing 75,000 UK companies, said some of the proposals in the document would increase upfront costs, regulatory obligations and uncertainty.

FT: German producer prices hit 2011 high Prices faced by German manufacturers have climbed to their highest in nearly six years as inflation is on the march across the continent. Annual producer prices hit 3.4 per cent in April, up from 3.1 per cent in the previous month and ahead of forecasts (3.2 per cent). It was the highest reading since December 2011. Seen as an early gauge of inflationary pressures building in an economy, higher factory gate prices are often passed on to consumers.

Reuters: Bank of England's growth and pay forecasts too optimistic - Reuters poll The Bank of England's growth and wage forecasts are too rosy, according to economists polled by Reuters who were divided on what a large Conservative majority in June's UK election would mean for Britain's divorce terms from the EU. BoE Governor Mark Carney said the forecasts hinged on a "smooth" transition to Brexit, as well as a big pick-up in wage growth and stronger exports and investment -- things the central bank has predicted before, but which have largely not materialised. Wage inflation would rise to 3.75 percent in 2019, the Bank said. But all except four of the 26 economists polled this week who answered an extra question said that was unlikely or very unlikely. The median forecast was 3.1 percent.

News in Brief - 18/05/2017

GBP

Sterling headed higher against the US dollar yesterday, but weakened to the euro, a development that casts doubt on how positive yesterday’s labour market figures really were. Unemployment ticked down to just 4.6%, a four decade low, but wage growth fell short of the rate of inflation, meaning that real wages were once again in contraction. Describing the health of the UK labour market is difficult, because although low unemployment is a good thing, the dismal level of real earnings growth is very concerning – as pointed out by the Resolution Foundation this has now been the worst decade for real wage growth since the Napoleonic wars. Today at 09:30 BST , monthly Retail Sales data will be released, and given the sharp contraction seen last month, the potential for a sterling sell off in the event of a miss is significant.

EUR

Ongoing political risk in the US and solid domestic data combined with prevailing global market caution on risk assets to make prime conditions for euro strength yesterday, and the single currency continued to appreciate against both sterling and USD. Revised Consumer Price Index data confirmed that euro inflation had risen sharply in April, bringing year on year CPI increases to 1.9%. No top tier euro data will be released today, but European Central Bank President Mario Draghi will speak at 18:00 BST.

USD

After weakening yesterday the US dollar managed to stabilise slightly against most of the G10 overnight, as a special council was appointed by the Trump administration to lead a probe into Russian interference in last year’s Presidential elections. Fundamental data was light on the ground, and regardless political headlines dominated the news cycle to the extent that even if there had been first tier economic data the impact would likely have been muted. Among yesterday’s interesting developments was the news that sacked FBO Director James Comey would be testifying to the Senate Intelligence Committee on reports that he was pressured by President Trump to end his investigation into former National Security advisor Michael Flynn. The hearing could be as soon as the 24th May, next week, and has the potential to be politically explosive given Comey’s history of not shying away from making politically sensitive statements to lawmakers, such as those regarding Hillary Clinton’s email investigation last year. Today at 13:30 BST weekly Initial Jobless Claims will be released, accompanied by the Philly Fed Manufacturing Index.

News in Brief - 17/05/2017

GBP

Sterling sold off in the wake of yesterday’s Consumer Price Index data, and has remained on a downwards trajectory against the euro, but did manage to rally against the dollar. Both the Consumer Price Index and the Core CPI, which excludes volatile items such as fuel, exceeded expectations yesterday, with inflation reaching 2.7% year on year. Higher than expected inflation prints tend to see their currencies strengthen in most G10 economies at the moment, due to expectations of a monetary response. However, the BoE has made it clear that it intends to look through the current overshoot in inflation, and so markets sold sterling as yesterday’s figures showed the extent of the price shock hitting the UK economy. In light of yesterday’s figures today’s labour market data seems crucial for sterling – a slowdown in the jobs market, or in wage growth, would seem to be a major risk for the pound. Labour Market data including the Unemployment Rate and Average Earnings will be out at 09:30 BST.

EUR

The euro remains on a tear this morning, having reached a fresh six month high against the US dollar. Yesterday’s data included the latest Gross Domestic Product figures for the eurozone, which showed growth at 0.5% in the first quarter, as expected, and the widely followed German ZEW Economic Sentiment survey, which showed a continued increase in optimism. The eurozone wide survey was even more optimistic than its German equivalent. Today at 10:00 BST eurozone Consumer Price Index data will be released.

USD

The dollar saw a day of unrelenting losses yesterday, even against sterling which had some bad data releases to contend with. Political risk remained a major theme f or the news cycle, as reports emerged that Donald Trump had asked FBI Director James Comey to drop an investigation into former National Security Advisor Michael Flynn. The request, if the report is true, could be construed as an attempt to obstruct justice – an impeachable offense. Building Permits and Housing Starts both contracted in April, but Industrial Production expanded 1%, the fastest monthly rate in 3 years. Today will be a slow day for the US calendar, with only Crude Oil inventories out at 15:30 BST.

UK News - 17/05/2017

Reuters: Inflation tightens screw on UK consumers as election nears British inflation hit its highest level since September 2013 last month, extending its sharp rise since the vote to leave the European Union and tightening the squeeze on living costs as a national election approaches. Consumer prices rose by an annual 2.7 percent, data showed, and they look set to rise further due to the fall in the value of the pound and the recent rise in global oil prices. Britain's economy was barely ruffled last year by the shock vote to leave the EU. But the steady rise in inflation since then, combined with weak wage growth, has slowed its momentum this year.

News in Brief - 16/05/2017

GBP

Weakness against the euro and USD is the theme of sterling trading this morning. Just released inflation data shows consumer prices beating expectations and, once again, putting the Bank of England in a difficult situation. Inflation has ramped up to a 4-year high and is now sniffing the BoE’s 3.0% forecasted peak over the next 2 years. If inflation continues the current trend and breaks above 3% over the next few months, the Bank of England could be forced to reassess its current stance and begin to tighten monetary policy, despite low wage growth. Sterling nonetheless has weakened on the back of the release as the BoE would continue to look through higher inflation, leaving the UK economy in a considerably weak spot.

EUR

The euro is on a tear this week, advancing further against USD this morning in the wake of a continuing unwind of political risk in the eurozone. This morning’s headline eurozone data will be a key test for the euro’s strong upwards trend, with the latest Gross Domestic Product figures and the widely followed ZEW Economic Sentiment Survey set to be released at 10:00 BST. Growth is expected to be strong at around 0.5% quarter on quarter, and sentiment has been improving steadily in recent editions of the ZEW survey, especially for the crucial German economy, meaning expectations are high for this morning’s releases.

USD

USD is once again under pressure this morning, amid further political turmoil as reports emerged for Donald Trump sharing sensitive intelligence with Russian ambassador Sergei Lavrov. Yesterday’s sole data release for USD was negative, with the Empire State Manufacturing Index falling to -1.0, reflecting falling reported output. Today will see a raft of data releases, beginning with Building Permits and Housing Starts at 13:30 BST. Industrial Production and Capacity Utilization will be released at 14:15, followed by Mortgage Delinquencies at 15:00.

News in Brief - 15/05/2017

GBP

Despite a quiet session overnight, sterling has opened this morning slightly firmer against USD and EUR. Last week’s Bank of England events ultimately did little to change the short term fortunes of sterling, but this week’s data may have a bigger impact, with Consumer Price Index data out on Tuesday, followed by labour market data on Wednesday and Retail sales on Thursday. The three data releases together will give an up to date look at key parts of the economy, and will be especially relevant for sterling given rising inflation and falling retail sales so far this year.

EUR

Some weak US data releases gave the euro an opportunity to head back to the top of its recent trading range against the greenback on Friday. No top tier data will be released today, and the European media is focussed on the results of German regional elections on Sunday, which delivered a win for Angela Merkel’s SDP. The result in favour of Germany’s ruling party, combined with the results of France’s Presidential election, are likely to contribute to a further unwind of political risk in the Eurozone. Later this week, Eurozone Gross Domestic Product data will be released on Tuesday, followed by Consumer Price Index data on Wednesday.

USD

USD came under downward pressure on Friday after a raft of poor fundamental data releases. The Consumer Price Index and Retail Sales both missed expectations, which in the case of CPI was particularly concerning for the dollar due to the now unmistakable slowdown in inflation since reaching a peak in February. For now the Federal Reserve seems fairly confident the current slowdown in US economic activity, wage growth and inflation is a blip – although another month of poor data releases would test this optimism. This will be a slow week for US data, beginning with today’s Empire State Manufacturing index at 13:30 BST, followed by the NAHB Housing Market Index at 15:00.

News in Brief - 12/05/2017

GBP

Sterling remains lower this morning, after yesterday’s Bank of England events made it clear that the rate-setting Monetary Policy Committee intended to stick to its guns and look through the coming increase in inflation. Governor Mark Carney did most of the talking at the press conference that followed the publication of the bank’s Inflation Report, which remained quite optimistic about the prospects for a revival of wage growth in the medium term. The key judgement seemed to be that the MPC was happy all of the overshoot in inflation that will develop over the next couple of years will be due to sterling weakness, and not factors internal to the economy; the Bank is satisfied that “stagflation”, the risk of inflation rising while the economy and employment stagnate, remains a distant prospect. Mike Tyson once said, “everyone has a plan until they get punched in the mouth”, and though the BoE certainly has a plan for the coming inflation overshoot, if the rise is faster than expected, or if output begins to fall, the rather sunny outlook in yesterday’s report could very quickly derail.

EUR

EURUSD once again closed flat on the day yesterday, despite seeing some volatility in the middle of the day. It was a very quiet day in terms of euro data, with only the German Wholesale Price Index released in the morning at 0.3% month on month growth compared to 0.0% previously. The European Commission’s economic forecasts were released, although these are far less important than the ECB’s member projections. The forecasts predicted stronger growth in general in the eurozone in 2017, with growth in the 19-nation euro area expected to be 1.7%. German Preliminary Gross Domestic Product figures for Q1 have been in line with this theme this morning, with 0.6% quarter on quarter growth, while the Consumer Price Index has changed 0.0% in April. AT 10:00 BST eurozone Industrial Production figures will be released.

USD

Apart from some incremental gains yesterday versus sterling USD has had a reasonably quiet 24 hours in a broad sense, with the weighted USD index DXY trading sideways. Yesterday’s most noteworthy data release came from weekly jobless figures, in which initial jobless claims were exceptionally low, and Continuing Claims reached their lowest level since 1988. Producer Prices, a leading indicator of consumer price index inflation, rose 0.5% in April, and even once volatile items such as fuel were excluded inflation prices rose 0.4%. Today at 13:30 BST the Consumer Price Index itself will be released alongside monthly Retail Sales, and the Federal Reserve’s Evans and Harker will speak at 15:00 and 17:30 respectively, completing an afternoon of materially important data for the US.

UK News - 12/05/2017

Reuters: Industrial output falls again, trade gap widens sharply as economy slows British industrial output shrank for a third month in a row in March, official data showed on Thursday, underscoring how the impact of last year's Brexit vote has begun to weigh on the economy. The Office for National Statistics also said Britain's trade deficit widened by more than expected, a further setback for hopes that the fall in the value of the pound since the European Union membership referendum would help rebalance the economy. Industrial output fell by a monthly 0.5 percent - a sharper decline than expected by economists taking part in a Reuters poll - and output in February was revised lower.

News in Brief - 11/05/2017

GBP

Despite getting a brief whiff of some fairly significant levels on GBPUSD during a brief burst of strength, sterling ultimately closed flat against the greenback, while remaining similarly stable against the euro. The Royal Institute of Chartered Surveyors latest monthly survey showed a continued decline in sales and new instructions, despite a comfortable balance of surveyors still reporting price increases in their areas. The data suggest that the property market is beginning to cool, even if this has not yet clearly showed up in price data, apart from Halifax’s house price index earlier this week. Monthly Construction, Industrial and Manufacturing output data will be released this morning at 09:30 BST alongside the Goods Trade Balance, but the day’s most important event for sterling will be the release of the Bank of England’s latest Inflation Report, alongside meeting minutes and a monetary policy decision. Rates are almost certainly likely to remain unchanged, but it’s possible that the number of Monetary Policy Committee members voting for a hike will rise to 2, after Michael Saunders made a rather hawkish speech in April and Kristen Forbes voted for a hike in March. The BoE’s releases are scheduled for 12:00, with a Press Conference following at 12:30.

EUR

EURUSD remained a snooze fest yesterday, trading in a tight range throughout most of the day as the news cycle focussed on political drama in the UK and US and little euro-relevant information emerged. European Central Bank President Mario Draghi did appear before Dutch lawmakers, giving several hours of intense, and occasionally somewhat surreal testimony. Draghi stuck to the ECB’s official line of wanting to wait for clear signs that inflation is improving on a sustainable basis before moving to normalise policy, but was pressed hard by lawmakers on areas such as the financial risks of QE. Draghi at one point raised his voice to lawmakers that seemed to be unaware of the fact the ECB already published meeting minutes. At the end of the session his efforts were rewarded with a tulip in a plastic bubble, as a reminder of the world’s first known speculative bubble and financial crash in 17th century Holland.

USD

USD traded sideways against GBP and EUR with some mild intraday volatility, as markets appeared to shrug off wider implications of the firing of FBI director James Comey for political stability. Monthly Import Price data showed a 0.5% increase, faster than expected and the fifth consecutive month of inflation. Today at 13:30 BST, weekly Unemployment Claims data will be released alongside the Producer Price Index, another important leading measure of consumer price inflation.

UK News - 11/05/2017

FT: Bank of England rate-setters forecast to be more hawkish Two MPC members thought to have voted for increase at latest meeting. Minutes of the latest meeting of the Bank of England’s rate-setting committee, due to be published on Thursday, could show an increase in the number of members voting for a rise in interest rates. At the previous meeting in March, only one of nine members of the BoE’s Monetary Policy Committee, Kristin Forbes, voted to increase rates. Ms Forbes has tended to be one of the most hawkish MPC members. But as the BoE grapples with the mixed signals sent out by the economy, some analysts have forecast that she could be joined this month by Michael Saunders, who made the case for higher interest rates in a speech to the Federation of Small Businesses (FSB) in London at the end of April.

News in Brief - 10/05/2017

GBP

After coming under pressure in the morning, sterling saw a reversal yesterday afternoon and began to rally, and has seen further gains this morning, particularly against USD. No headline data will be released today, as markets look ahead to tomorrow’s “super Thursday” events with the Bank of England. A move towards tighter policy is hardly likely, but tomorrow’s Inflation Report will offer the BoE the change to revise its outlook for the economy, potentially in a slightly more hawkish direction given resilient economic growth, rising inflation, and an improving labour market.

EUR

EURUSD trended downwards over the course of yesterday, but has stabilised somewhat during a quiet overnight session. A couple of mid-tier data releases have already been released this morning, in the form of decent monthly French Industrial Production data and a smaller than expected Trade Deficit for France, and Italian Industrial Production is due at 09:00 BST. However, the day’s biggest event for the euro will be an appearance by European Central Bank President Mario Draghi to Dutch lawmakers, at 13:00. Draghi is likely to give his usual robust defence of the ECB’s loose monetary policy. Nonetheless, the rising level of inflation in the eurozone seen since the ECB’s last press conference has potentially given lawmakers better ammunition to press Draghi on whether the outlook has now changed.

USD

USD is lower on a broad basis this morning, after news that FBI director James Comey had been dismissed from office by Donald Trump. Although the ostensible reason for the dismissal was due to revelations that Comey had misled a Congressional enquiry last week, as the FBI is currently investigating contacts between the Trump campaign and Russian officials, questions have been raised about the dismissal being politically motivated. Yesterday’s data included a strong print for monthly Job Openings data, which showed open positions in the economy at their highest level since September 2016. Little US data will be released today, apart from Import Prices at 13:30 BST.

UK News - 10/05/2017

FT: Trump fires FBI director James Comey Washington stunned by dismissal while bureau probes Trump campaign ties to Russia. President Donald Trump has fired James Comey, the director of the Federal Bureau of Investigation and the man overseeing the agency’s investigation into contacts between the Trump presidential campaign and Russian officials. The White House said Mr Trump “terminated” Mr Comey with immediate effect following advice from Jeff Sessions, the attorney-general, and his deputy Rod Rosenstein. Mr Trump informed Mr Comey in a letter delivered by a White House aide, writing: “While I greatly appreciate you informing me, on three separate occasions, that I am not under investigation, I nevertheless concur with [their] judgment?.?.?.?that you are not able to effectively lead the bureau.”

FT: UK tech investors face loss of significant funding after Brexit EU venture capital body cuts activity in Britain after triggering of Article 50. British technology investors face being cut off from Europe’s largest single source of venture capital funding, in a sign that the UK’s relationship with European institutions is weakening even before its official exit from the EU. The European Investment Fund, a public-private partnership which accounts for more than a third of investment in UK-based venture capital funds, is slowing its activity in Britain and turning away funds that may have otherwise been eligible for investment, according to industry figures.

News in Brief - 09/05/2017

GBP

Sterling saw some volatility overnight against USD and EUR, ultimately ending up slightly weaker vs USD and up vs the euro. Data from the British Retail Consortium overnight showed that Easter was a good month for the beleaguered UK retail sector, which reported an increase in the value of goods sold in April compared to a year ago, due to the timing of this year’s holiday. No further sterling data will be released today.

EUR

Buy the rumour, sell the fact was an apt description of yesterday’s euro trading, as the single currency saw broad weakness in the wake of Macron’s victory in Sunday’s French election. French banks were closed yesterday for Victory day, but data was released elsewhere in the eurozone, as German Factory Orders expanded 1.0% in March. The Sentix Investor Confidence index rose to 27.3, reflecting a substantial improvement among the surveyed investors and analysts compared to last month’s reading. This morning’s data has included a smaller than expected contraction in German Industrial Production and a smaller than expected German Trade surplus, neither of which have had a large effect on the euro.

USD

The US dollar had a good start to the week yesterday against GBP and EUR, despite the supposedly euro-postive results of Sunday’s election. Yesterday was a quiet day data wise, but today will see the release of several relevant data points, beginning with the NFIB Small Business Index at 11:00 BST, which is expected to fall from last month’s multi year high. Later in the afternoon at 15:00 the Job Openings and Labour Turnover Summary will be released, with Job Openings an important indicator of the demand for workers in the economy, alongside Wholesale Inventories and EBD Economic Optimism. At 21:15 the Federal Reserve’s Robert Kaplan will speak.

UK News - 09/05/2017

FT: Easter brings ‘brief respite’ for UK retailers, says industry body April sales grew 6.3% but rising prices likely to squeeze high street. Easter provided a “brief period of respite” for UK retailers with healthy sales growth in April, but rising prices are likely to renew the squeeze on the British high street in the second quarter, according to new industry figures published on Tuesday. The British Retail Consortium estimated that the value of goods sold in its members’ stores rose 6.3 per cent in April, compared with the same month in 2016. However, most of the rise was the result of Easter falling in mid-April this year, compared with late March last year.

Reuters: British exporters see few long-term gains from sterling windfall With 85 percent of its customers outside Britain, Sheffield-based Gripple should be cheering the plunge in sterling since last year's vote to leave the European Union, which means every overseas sale brings in more pounds than before. British exporters are enjoying a Brexit windfall as a result of the pound's fall, which has helped push up the value of the goods they export by 15 percent since a year ago. Some hope the boost to manufacturers will foster a rebalancing of the economy, which has long relied on domestic consumers.

News in Brief - 08/05/2017

GBP

Sterling opens this week’s session with moderate gains against the euro as the single currency lost traction after an expected result in the French elections last night. GBPUSD is hovering near an 8-month high as US 10 year Treasury yields find some resistance around 2.36%, which is keeping a cap on the dollar. This week is a very slow one in terms of macro data for the UK. The main event though is the Bank of England’s Monetary Policy Committee meeting that takes place on Thursday. Markets remain focused on a possible shift in the central bank’s tone since one member dissented in the previous meeting calling for an immediate interest rate hike. If the MPC again shows some hiking intention, sterling could well rally towards the end of the week.

EUR

The single currency opened Asia’s session with a spike after markets learned that Emmanuel Macron is the next President of France, ending fears of a populist upswing in the core of the Eurozone. However, investors appear to be unwinding long euro positions in a typical “buy the rumour, sell the fact” episode. Markets had already priced in Macron’s victory by the end of last week as polls strongly suggested the victory of the centrist candidate, which was reinforced after the debate on television. Moving ahead, markets find a lack of traction to buy the euro, expecting some sort of additional information ahead of new buying activity. We find particularly telling that the French equity benchmark (the CAC 40) is falling this morning, some 0.62% at the time of writing.

USD

The dollar jumped out of the spotlight this morning as markets remain focused on the other side of the Atlantic. In terms of fundamental data, nothing important is expected until Friday when the most recent consumer price inflation figures will be released. After last month’s contraction in headline and core inflation, a modest rebound is expected.

UK News - 08/05/2017

FT: Emmanuel Macron sweeps to victory in French presidential election Independent centrist beats far-right Marine Le Pen with 66% of vote. Emmanuel Macron has swept to emphatic victory in France’s presidential election, clinching 66 per cent of the vote to beat far-right candidate Marine Le Pen. The National Front candidate’s 34 per cent share fell well short of the most optimistic projections for Ms Le Pen, which had suggested she could win as much as 45 per cent of the vote in the second round.

Reuters: UK house price growth remains at near four-year low - Halifax British house price growth remains at its weakest level for nearly four years, mortgage lender Halifax said on Monday, echoing other signs of a slowdown in the housing market amid uncertainty about the impact of Brexit on the economy. House prices rose 3.8 percent in the three months to April compared with the same period a year ago, the same pace as in March which was the weakest increase since May 2013. Economists taking part in a Reuters poll had expected the pace of house price growth to slow to 3.6 percent.

News in Brief - 05/05/2017

GBP

Sterling spent yesterday’s session on a steady rally against the US dollar after some losses early in the morning, and has extended its gains this morning. Yesterday’s strong print on Markit’s Services Purchasing Managers Index, together with previous surveys for Manufacturing and Construction, suggested the UK economy was growing at around 0.6% a quarter, according to economists from Markit, the firm producing the surveys. Bank of England Money Supply data in the meantime showed a steady expansion in mortgage approvals. No further sterling data will be released this week.

EUR

After essentially trading sideways versus the dollar for several sessions, the euro saw a major breakout against the greenback yesterday, and is holding on to the advances well this morning, although it has weakened somewhat against sterling. Services Purchasing Managers’ Indices yesterday showed a steady pace of expansion in the sector across the region, while eurozone retail sales beat expectations to rise 0.3% in March. Today’s only major release will be Retail PMI at 09:10 BST, and although the French election on Sunday is viewed as now being overwhelmingly likely to end with victory for centrist Macron, the event itself will mean that the euro is likely to have a volatile start to next week.

USD

The US dollar came under pressure versus sterling and the euro overnight but advanced against commodity currencies such as AUD and NOK. Yesterday’s data releases were fairly solid, with weekly Unemployment Claims once again low at just 238,000, while Unit Labour Costs rose 3.0% In the first quarter, according to preliminary estimates, and the Trade Balance shrunk marginally. Factory orders rose 0.2% in March, after a sharp 1.2% pickup in February. Today at 13:30 BST the monthly Non-Farm Payrolls report will be released, providing the most important, and high impact look at the state of the US labour market. After Wednesday’s Fed statement revealed that the Federal Open Markets Committee viewed the slowdown in growth over the first quarter as transitory, today’s report seems to have a low bar to jump over in order to prove satisfactory for USD. Anything above last month’s rate of 98,000 jobs combined with decent figure for wage growth is likely to at least see the greenback stem the morning’s losses. Later in the evening, Fed Chair Yellen and her colleague Charles Evans will speak at 18:30 BST.

UK News - 05/05/2017

FT: Conservatives make big gains in UK local elections First results for nearly 5,000 council seats point to heavy losses for Labour. Theresa May’s Conservatives have made sweeping gains in local elections across Britain, results that point towards a comfortable Tory victory in next month’s general election, heavy losses for Labour and the collapse of Ukip. In the last big test of public opinion before the June 8 national poll, the Tories were set for their best local results for a decade with Mrs May’s party on course to make gains of several hundred seats and lay waste to Ukip. While the Tories were making solid advances across England and Wales, Labour was in retreat, losing control of Blaenau Gwent, Bridgend and Merthyr Tydfil in its South Wales heartland.

FT: Trump celebrates House vote to repeal Obamacareº Republicans provide first legislative victory for president’s agenda. Donald Trump celebrated his first big legislative victory by inviting Republican lawmakers to the White House after the House of Representatives voted to replace Obamacare. The House voted 217-213 to pass a Republican bill that would erase large portions of the signature healthcare reforms passed by Barack Obama in 2010. While the bill faces an uncertain future in the Senate, Thursday’s outcome was a big win for Mr Trump, whose first 100 days in office had ended without notable legislative achievements. “Its going to be an unbelievable victory?.?.?.?when we get it through the Senate,” Mr Trump said in the Rose Garden, flanked by dozens of congressmen “This has really brought the Republican party together.”

News in Brief - 04/05/2017

GBP

Sterling has wilted in the face of widespread USD strength over the past 24 hours, with GBPUSD having now shed all of the attritional gains it had made over the past week. Theresa May gave a speech where she appeared to be leveraging a recent spat with European Commission President Jean-Claude Junker for domestic political capital, the latest move in a week of politicking from both sides. Of course, as negotiations proceed compromise is likely, but for now the political theatre remains only a minor driver for sterling regardless. Yesterday’s Construction Purchasing Managers Index from Markit showed reported output in the sector rising, and today at 09:30 BST the equivalent index for Services will be released, alongside Bank of England Money Supply data. The Services PMI figure is particularly important, given the sector’s dominance of the economy.

EUR

The euro took a hit against the US dollar last night, but has maintained momentum against sterling. Yesterday’s eurozone Gross Domestic Product growth figures were in line with expectations, coming in at 0.5% growth in the first quarter while Producer Prices contracted 0.3%. in March. This morning’s data has already included Services Purchasing Managers Indices from France, Germany, Italy and Spain, which showed solid reported output growth in the sector. Retail Sales data will be released at 10:00 BST, and later in the afternoon European Central Bank President Mario Draghi will speak at 17:30.

USD

Last night’s Federal Open Market Committee releases gave the dollar a sharp boost, as policy makers dismissed the recent slowdown in US economic activity as likely to be transitory, and signalled the Fed remained on track for a rate hike as early as June. Federal funds futures markets immediately responded, reflecting a far higher market-implied probability of a hike in June. Yesterday’s data also included a decent prints on services sector Purchasing Managers Indices from Markit and ISM, and an estimate of 177,000 jobs from ADP for Friday’s official non-farms report. Today at 13:30 BST weekly Unemployment Claims will be released, accompanied by Unit Labour Costs, Productivity, and Trade Balance data. At 15:00 Factory Orders will be released, rounding out an afternoon of important “hard data” that actually directly measures the state of the US economy.

UK News - 04/05/2017

FT: May accuses Brussels of trying to influence UK election Prime minister says EU politicians are making ‘threats against Britain’. Theresa May has accused “European politicians and officials” of threatening Britain and trying to sabotage her attempt to win the general election in an apparently deliberate move to stoke Brexit tensions with Brussels. Standing on the steps of Number 10, Mrs May claimed that events of recent days showed that “there are some in Brussels who do not want these [Brexit] talks to succeed”.

Reuters: After bumper March, UK car sales plunge in April British new car registrations slumped by around 20 percent year-on-year last month following a record high in March when drivers brought forward purchases to avoid a tax hike, according to preliminary data from an industry body. Volumes in April are generally low as they follow on from March, often the top-selling month of the year as it is one of only two occasions when a new licence plate series is issued. This year, sales jumped to a record high in March as some consumers and businesses sought to avoid paying an increase in excise duty that came into force from April 1 for the most polluting vehicles.

News in Brief - 03/05/2017

GBP

Strong manufacturing survey data boosted sterling yesterday, but the pound had a rough overnight session and has since retraced most of yesterday’s progress against USD. Yesterday’s Manufacturing Purchasing Managers Index for the manufacturing sector showed a boom in reported activity, with the index rising to a whopping 57.3 in the latest survey. This morning’s UK Shop Price Index data from the British Retail sales consortium showed the smallest annual decline in prices in more than three years, an indication of rising inflationary pressure in the economy. Elsewhere, political posturing by Theresa May’s government and her European negotiating partners intensified. May did her level best to channel Margaret Thatcher, claiming she will be a “bloody difficult woman” during negotiations, in response to Jean-Claude Junker’s apparent leaking of the weekend’s dinner conversation topics. This morning’s headlines also included reports of an increase in the European Union’s demands for Britain’s “exit bill”, which is expected to be a major point of contention. Although sterling is indeed trading down slightly, the lack of a true adverse reaction in the pound this week illustrates the extent of market apathy to Brexit risk at present.

EUR

The euro continued to make inroads against USD yesterday, as solid survey data was released and Greece agreed to further austerity in exchange for more bailout funds. Fresh pension cuts were included in the agreed package, potentially opening the door to debt relief in later negotiations. Yesterday’s eurozone Manufacturing Purchasing Managers Index data showed the sector in solid expansion, while Unemployment remained at 9.5%. This morning’s data has included German Unemployment (5.8%), and the latest eurozone Gross Domestic Product figures will be released alongside Producer Prices at 10:00 BST.

USD

USD pared back some of its losses from yesterday overnight, despite President Donald Trump appearing to call for a government “shutdown”, in a message on his Twitter account. Trump’s latest outburst comes after Sunday’s budget agreement between Democrat and Republican lawmakers did not contain funding to build a border wall with Mexico, which had been a key campaign pledge. In terms of economic data, yesterday saw news that Total Vehicle Sales had registered a sharp drop in April from the previous month, which had also been a disappointing month for auto makers. Auto sales, although volatile, are considered a good barometer of consumer spending. Today at 13:15 BST the ADP estimate of official Non-Farm payrolls will be released, followed at 14:45 and 15:00 by Services Purchasing Managers. The Federal Reserve’s latest rate decision will be announced at 19:00, and although extremely unlikely and not expected by markets, a rate hike cannot be entirely ruled out as a possibility.

UK News - 03/05/2017

FT: Brussels hoists gross Brexit ‘bill’ to €100bn France and Germany back tougher approach to Britain’s departure obligations. The EU has raised its opening demand for Britain’s Brexit bill to an upfront gross payment of up to €100bn, according to Financial Times analysis of new stricter demands driven by France and Germany. Following direct requests from several member states, EU negotiators have revised their calculations to maximise the liabilities Britain is asked to cover, including post-Brexit farm payments and EU administration fees in 2019 and 2020. Although over coming decades Britain’s net bill would be lower than the €100bn upfront settlement, the more stringent approach to Britain’s outstanding obligations significantly increases the estimated €60bn charge mentioned by Jean-Claude Juncker, the European Commission president.

News in Brief - 02/05/2017

GBP

Despite low trading volumes due to the UK’s May bank holiday yesterday, and there also being no data releases, sterling still strengthened further against the US dollar. Today at 09:30 BST the Markit Manufacturing Purchasing Managers Index will be released, providing an up to date look at the health of the sector. Even though manufacturing is a relatively minor part of the UK economy in output terms, it has enjoyed a strong increase in reported activity in recent months and so a slowdown would be an unwelcome surprise. Equivalent indices for Construction and Services will be released on Wednesday and Thursday, rounding off a slow week for sterling data.

EUR

The euro took advantage of yesterday’s weak US data and strengthened against the greenback, while also making progress against sterling. The European data calendar will start in earnest today, with Spanish Manufacturing Purchasing Managers Index data out at 08:15 BST, followed by Italian, French, and German equivalents in the lead up to European Manufacturing PMI at 09:00 and the eurozone unemployment rate at 10:00. Later in the week the first reading of eurozone Gross Domestic Product growth in Q1 2017 will be released on Wednesday.

USD

USD took a hit yesterday upon the release of inflation data. The Core Personal Consumption Expenditures Price Index fell by 0.1% in March, bucking the trend seen in headline CPI inflation, which has generally been positive. This brought year on year PCE inflation, which is the Federal Reserve’s preferred inflation measure, down to 1.8% from 2.1% previously, and was enough to send USD reeling. Construction Spending also contracted in March after strong growth previously, while Manufacturing Surveys from ISM and Markit showed the sector remained in growth. Total vehicle sales will be released throughout today. Later this week, the Federal Reserve’s latest rate decision will be announced at 19:00 on Wednesday, and on Friday the latest Non-Farm Payrolls report will be released.

UK News - 02/05/2017

FT: Brussels set for power grab on London euro-clearing market Plans seek EU policing or operators’ relocation for €850bn-a-day business. Brussels is rushing out proposals to impose EU control on the City of London’s lucrative euro-clearing market, forcing UK operators to either relocate or be policed by European authorities. In a provocative regulatory salvo fired as Brexit talks begin, the European Commission is preparing to issue legislative proposals in June that would heavily restrict London’s ability to host one of its flagship financial businesses.

Reuters: British consumer confidence slips to four-month low in April - GfK British consumers were their most gloomy in four months in April as they weighed up the outlook for the economy and their finances ahead of Brexit and June's general election. Market research firm GfK's measure of consumer morale slipped to -7 from -6 in March, in line with the median forecast by economists polled by Reuters. Still, the survey showed consumer confidence remained robust by historical standards, which may reassure policymakers who are watching to see how a recent rise in inflation is affecting household spending, the main driver of the economy.
 
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