IFX Market Report
Monday 27th February 2017

Market Report

For sterling, the highlight of last week’s data calendar was the second estimate of UK Gross Domestic Product (GDP). This surprised markets with an upward performance by 0.7% against the almost nailed-on forecast of 0.6%. A few other lower level releases did disappoint, however the markets focus was not primarily on the GBP and as such they went mostly unnoticed. What did get attention though was the inflationary report where it clearly shows that even though inflation is rising and economic numbers are proving more robust than first expected, the BoE is reluctant to raise rates. This week’s main events are PMI data due at 09:30 on Wednesday.

The GBP is down against the dollar (GBPUSD) in anticipation of the Trump talk on Tuesday where investors are hoping for more details relating to Tax Reform and Fiscal spending. If these are not provided, expect the market to show the market is frustrated with the lack of clarity and the dollar to then weaken. If new information is released we could see a very strong dollar this week. Despite the 1.14% uptick on GBPUSD last week, the pair opens 0.43% before the opening rate on Monday last week.

GBPEUR has lost ground this morning as the pound has also been sold off against the EUR this morning. Most are finding this GBP depreciation quite surprising and, without just using profit taking as the reason. Some are saying one of the contributing factors for this morning’s GBP weakness could be coming from the increased reporting, and belief that Scotland will hold its own referendum as early as next year. GBPEUR is down 1.39% for the calendar week and currently changes hands at 1.1737.

A quiet day in the market for sterling today, however the week is certainly not. At midnight overnight tonight (00:01) GFK release their ‘Consumer Confidence index’ (Forecast to drop further from -5 to -6). On Wednesday at 09:30 the CIPS & Markit release the ‘Manufacturing PMI’ (A slight downward revision from last month’s 55.9 to 55.7/55.5). Also on Wednesday at 09:30 the BoE will announce, ‘Net Lending to Individuals’ (a shock reading last month, way under the expectation of £5.3bn at £4.8bn. This month it appears analysts have re-priced their expectations accordingly has been and forecast another drop to £4bn). On Thursday at 09:30, CIPS & Markit release ‘Construction PMI’ for February (January posted the lowest reading since Aug-16 of 52.2 and unfortunately not much is expected to have changed, with expectation ranges between 52.1 and 52.4). Finally on Friday, we round up a full week of Purchasing Manager’s Indices with the 09:30 ‘Services PMI’ (Always the strongest bellwether to the UK economy, that is 70%+ service-based and forecast is for a contraction from 54.5 to 54.2).

Worldwide News

The USD had a volatile week last week starting slow from a bank holiday on Monday, the markets interpretations of the FOMC minutes as more dovish than expected, profit taking and awaiting information on fiscal stimulus, all added to the USD uncertainty. It was then further harmed as Treasury Secretary, Steven Mnuchin said that the tax-reform may have to be delayed till August. It already appears that most the markets focus is on President Trumps speech due on Tuesday which the markets hope provide further information on tax and economic reform and exactly when these changes will be implemented. In the build-up though, and even after, we have a week packed with fundamentals to provide additional direction.

A pretty flat start to the week for the world’s largest currency pairing, EURUSD. It appears both are needing some direct data and with the day ahead that we have they certainly are going to get it. A total of 8 pieces of EUR + USD data fill the day today from 8am to 4pm so the potential for volatility is high. The pair is currently 0.29% below Friday’s high at 1.0585.

For the Euro, As with most currencies last week the EUR was pulled by volatility, profit taking but overall performed well. We did see some fear as low levels were tested but Eurozone data remained mostly positive with flash PMI’S looking good and data from Germany, namely the IFO data beating expectations. However election fears still abound and as such uncertainty will still prevail.

The data calendar for the Euro is also well rounded, on Monday we have 08:00 Spanish Flash CPI (Inflationary data is always important and when you consider Spain, as the Eurozones 4th largest contributor it becomes all the more important. 3.3% is the target this month). at 10:00 we have Eurozone M3 Money Supply (The European Central Bank is probably satisfied to see the amount of money in circulation (M3 Money Supply) move up to 5% y/y and the growth of private loans tick up to 2% y/y. This is an indicator of economic growth. Similar numbers are expected: 4.9% and 2.1% for M3 Money Supply and Private Loans respectively).On Wednesday between 08:45 and 09:00 we have Manufacturing PMI’s (Spain, Italy, France and German figures all due in the morning and the final euro-zone score at 9:00. Spain posted a solid growth rate in January, 55.6 points. A score of 55.9 is predicted now. Italy fell behind with 53 points, 53.6 is estimated now. The initial data for February for France showed 52.3 points. Germany had a strong figure of 57, reflecting robust growth and the euro-zone had 55.5). Also on Wednesday at 09:00 we have German Unemployment change (A drop of 10k is expected this month from last months drop of 26K). For the remainder fo the week, on Thursday we have Flash Consumer Price Indexes (CPI) and on Friday we have Services PMI’s.

A busy week for the U.S. Dollar. On Monday we have, 13:30 Core Durable Goods Orders (Orders fell by 0.4% in December pointing toward a drop in military aircraft. Demand for other long lasting products was on the rise as machinery, electricals and communications equipment rose pointing toward a country with business’ preparing for expansion and stronger growth. Durable Goods Orders are expected to climb 1.6% while core orders are expected to gain 0.5%). Later in the day at 15:00, Pending Home Sales (January hit target of 1.6%, although this month a slight drop to 1.1% is expected.) On Tuesday at13:30, U.S. GDP (A high reading of 3.2% from 3% last quarter is expected to be met with a lower reading of 2.1% this time round. The previous reading was its best performance in 2 years so is not expected to be a sustainable figure). At 15:00 US Consumer Confidence ( fell from a 15-year high of 113.7 to 111.8 in January from worse than expected wage growth, this month we forecast 111.1). Finally on Tuesday evening we have Trumps Speech at Congress (A speech from Trump is expected at a joint session of Congress on Tuesday Night. His plans are to preview some elements of tax reform and fiscal spending, along with other such points that he has touched on like regulation and how to make USA companies more globally competitive).

For the U.S. for the remainder of the week on Wednesday: 15:00 ISM Manufacturing PMI & 17:00 FOMC Kaplan and 22:00 Brainard speak. On Thursday at 13:30 we have the weekly U.S. Unemployment Claims. On Friday: 15:00 ISM Non-Manufacturing PMI and 18:00 Fed Chair Yellen Speaks. Have a great week.