House of Lords Sinks PM May’s Plans, Wants Stronger Customs Union with EU

A vote in the UK’s House of Lords last night defeated the Government’s plan to leave the customs union with the EU. The House voted down the proposal 348 to 225. While this does not prevent the UK leaving, it does show some of the opposition that is building up against aspects of the withdrawal. The vote now demands that the Government explores the option of staying in the customs union with the EU. Market reaction to the vote was muted but it does change the playing field, as investment in the UK suffers. UK retail sales will be released later today, with an expectation for a fall in monthly numbers. Gold is higher to 1352.00 as asset prices increase globally and stock markets outperform on positive earnings reports. The FTSE is up to 7320.00 after rising 1.26% yesterday.

UK Consumer Price Index (YoY) (Mar) was 2.5% v an expected 2.7%, from 2.7% previously. Core Consumer Price Index (YoY) (Mar) was 2.3% v an expected 2.5%, from 2.4% prior. Consumer Price Index (MoM) (Mar) was 0.1% v an expected 0.3%, from 0.4% prior. Producer Price Index – Output (MoM) n.s.a. (Mar) was as expected at 0.2%, from 0.0% previously. Producer Price Index – Output (YoY) n.s.a. (Mar) was 2.4% expected at 2.3%, from 2.6% previously. Producer Price Index – Input (MoM) n.s.a. (Mar) was -0.1% v an expected 0.3%, from -1.1% previously, which was revised up to -0.4%. Producer Price Index – Input (YoY) n.s.a. (Mar) was 4.2% v an expected 4.1%, from 3.4% previously, which was revised up to 3.8%. Retail Price Index (MoM) (Mar) was 0.1% v an expected 0.3% against 0.8% previously. Retail Price Index (YoY) (Mar) was 3.3% v an expected 3.6%, from 3.6% prior. These data points showed CPI dipping. The yearly figure has been above the Bank of England’s 2% target since March of 2017, due to the change in the value of the pound after Brexit. However, the BOE says that inflation is likely to move back to 2% in 2018. Despite the drop yesterday, the pressure is on the BOE to increase rates sooner rather than later, as wage growth moves past inflation. Producer Prices increased in March after the drop in February, including higher revisions. GBPUSD tumbled exactly 100 pips from 1.42731 to a low of 1.41731 following the release of this data. EURGBP moved up from 0.86609 to 0.87206.

Eurozone Consumer Price Index – Core (YoY) (Mar) was released coming in as expected, unchanged at 1.0%. Consumer Price Index (MoM) (Mar) was also as expected, at 1.0%, from 0.2% previously. Consumer Price Index (YoY) (Mar) was 1.3% v an expected 1.4%, from 1.4% previously. Consumer Price Index – Core (MoM) (Mar) was as expected at 1.4%, from 0.4% prior. Inflation rose to 2.0%, the highest levels in five years, in late 2016 and early in 2017 but has stabilized around 1.3% since June. The ECB is looking for inflation to “approach 2%”. The target was hit on the yearly metric in March 2017 but has slipped since a year ago. CPI data came in largely as expected for the monthly figures but slipped slightly for the yearly figures. EURUSD fell from1.23594 to a low of 1.23412 but recovered to 1.23745 on the release of this data.

Bank of Canada Rate Statement was made public. The Monetary Policy Report was released and the Interest Rate Decision was left unchanged, as expected, at 1.25%. The GDP Q1 forecast was cut to 1.3% from 2.5%, as growth fell short of the mark in Q4 and Q1, but a rebound is expected in Q2 at 2.5%. Inflation is close to 2%, as temporary factors dissipate and the rises in core are consistent with little economic slack. The potential output growth has been raised to 1.8% in 2018-2020 period and 1.9% in 2021. The BOC says it is monitoring the economy’s sensitivity to higher interest rates. It repeats that the BOC will be cautious with respect to future hikes. Escalating geopolitical and trade conflicts risk undermining global expansion. Wages have continued to pick up as expected and the labour market will continue to be assessed for signs of remaining slack. Some of the Q1 weakness in housing and exports will be unwound as 2018 progresses. 2018 growth was trimmed to 2.0%, from 2.2% and 2019 growth was boosted to 2.1%, from 1.6%. USDCAD rose on the headlines to 1.2610 from 1.2550.

The US Fed’s Beige Book data was released. The Fed sees only modest wage gains in most districts, with businesses turning to automation and more training to deal with shortfalls. Businesses in manufacturing, agriculture, transport and other sectors ‘expressed concern’ about the newly imposed and proposed tariffs. There were widespread reports of higher steel prices due to the new tariffs. Employment growth continued, with the labour markets being described as tight across the country, with shortages in high-skill positions, construction and transportation. Prices increased across all districts, generally at a moderate pace. The prices of building materials have been rising.

Fed Member Quarles spoke at the Bretton Woods Committee Annual Meeting, in Washington DC, making the following comments: The labor market may have more slack, inflation under 2%. He does not support raising the Fed’s inflation target and the case for retaining the current floor system is compelling. He believes the Fed should return to neutral to ensure price stability and that trade and fiscal policies have raised longer-term risks. He added that the case for more aggressive tightening is not compelling. He said he expects inflation to rise slowly towards the target and sees year-over-year gains in April numbers. He supports only gradual rate hikes given inflation remains below target. He expects US monetary policy to be slightly restricted in the years ahead. He suggests an inflation range from 1.5% to 2.5%.

New Zealand Consumer Price Index (QoQ) (Q1) came in as expected at 0.5%, against a previous 0.1%. Consumer Price Index (YoY) (Q1) was also as expected, at 1.1%, against a previous 1.6%. NZDUSD moved up to resistance at 0.73429 from 0.73250, before slipping back to a low of 0.73085 after the data release.

Australian Employment Change s.a. (Mar) was 4.9K v an expected 21.0K, from 17.5K previously. The Unemployment Rate s.a. (Mar) was as expected, at 5.5%, from 5.6% previously. The Participation Rate (Mar) was 65.5% v an expected 65.7%, from 65.7% previously. National Australia Bank’s Business Confidence (QoQ) (Q1) was 7 against a previous reading of 6 last quarter. Upon the release of this data, AUDUSD fell from 0.77946 to support at 0.77636, before rallying past the earlier high to the 0.78091 level.

EURUSD is up 0.02% overnight, trading around 1.23760.

USDJPY is up 0.17% in early session trading at around 107.410.

GBPUSD is up 0.02% this morning, trading around 1.42035.

USDCAD is down -0.02%, trading around 1.26241.

Gold is up 0.19% in early morning trading at around $1,351.60.

WTI is down -0.04% this morning, trading around $68.78.