Hard brexit back on the table?
Following a lack of economic data for the UK on Friday, Sterling fell due to political tensions surrounding a hard Brexit. Theresa May commented yesterday that the UK would look to prioritise immigration limits over keeping access to the EU’s single market. The markets are expecting May to attempt to negotiate a separate free trade agreement with the European Union. Adding to the ongoing turbulence, the SNP’s Nicola Sturgeon said Scotland could invoke a second independence referendum if the UK withdraws from the single market.
Parliament re-opens today. There is mounting speculation that the Supreme Court will release its judgment today on whether the UK government should seek parliamentary approval before triggering Article 50 talks. These renewed Brexit fears are now weighing further on Sterling, sending GBPUSD to fresh lows around the 1.2200 level, with more volatility expected over the course of the week.
The US Nonfarm Payrolls data printed below consensus at 156k, missing expectations of around 175k for the month and the November data was revised up to 204k. The unemployment rate met expectations with an increase to 4.7% from 4.6%. The market focussed on the stronger than expected increase in average earnings of 0.4%, which pushed the annual increase to 2.9% from 2.5%.
The earnings data maintained expectations of both a strong US economy and further increases in US interest rates during the next few months to keep domestic inflationary pressures in check. These expectations are supporting the Dollar.
Chicago Fed President Evans, a known dove, indicated that two rate increases were realistic in 2017 and that three hikes were not implausible. Philadelphia head Harker stated that he expected three rate hikes during the year.
Overall confidence in the Eurozone spending outlook remained firm despite German economic data falling short with a 2.5% decline in factory orders for November. Eurozone retail sales also registered a monthly decline.
Data to watch: 7am German Trade Balance, Exports & Current Account. 10am Euro Unemployment Rate. 2pm US Labour Market Conditions. 8pm US Consumer Credit Change.