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Brexit passes first hurdle of many

Brexit passes first hurdle of many

The UK PMI manufacturing index dipped slightly to 55.9 for January from 56.1 previously, but still remains in the neighbourhood of 30-month highs. The input price inflation rising to the highest level for 25 years has increased speculation that the Bank of England will have to tighten monetary policy, which buoyed the Pound.

The Brexit bill was passed with minimal resistance and now the motion goes to the Lords for approval. Sterling pushed to highs just above 1.2670 versus the Dollar after the Fed meeting failed to mention rate hikes while the Pound held above 1.1750 against the Euro.

Super Thursday means we’re treated to the triple bill of the quarterly inflation report, an interest rate decision and minutes from the Monetary Policy Committee’s meeting. The Bank of England is not expected to change interest rates following today’s meeting, but the statement will have potentially important implications for expectations surrounding policy over the next few months.

As expected, the US Fed maintained its interest rate at 0.75% at the meeting yesterday. There was no significant news on the Fed’s economic outlook or when to expect the next rate hike. It is still expected that there will be two Fed hikes this year (in June and December), but the probability of a third hike has increased due to a combination of strong US data and a more hawkish Fed at the December 2016 meeting.

The headline US ADP employment data was notably stronger than expected with an increase of 246,000 for January from 151,000 previously. The data tended to increase optimism surrounding tomorrow’s nonfarm payrolls and provided a near-term boost to the Dollar against the Euro.

The ISM manufacturing reading was also stronger than expected at 56.0 for January from 54.7 previously. This was the strongest reading for over two years. There were also robust components for the employment and prices indices which boosted confidence in tomorrow’s nonfarm payrolls and also maintained the pressure for higher interest rates.

The Eurozone PMI manufacturing index showed a marginal increase for January with strong gains in employment and an acceleration in price increases which maintained confidence in the Eurozone economic outlook.

Data to watch: 9am EUR Economic Bulletin. UK 9.30am PMI Construction (Jan). 10am Producer Price Index (Dec). 12pm UK Quarterly Inflation Report,  Interest Rate and Asset Purchase Facility decision, MPC Votes & Minutes. 121.30pm Mark Carney Speech. 1.30pm US Initial & Continuing Jobless Claims, Nonfarm Productivity & Unit Labour Costs.

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