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Hard Brexit to add to Euro policy schism troubles?

Hard Brexit to add to Euro policy schism troubles?

Theresa May has disclosed that she will give a speech next Tuesday to set out her plans for ending Britain’s membership with the European Union. The news reinvigorated ‘hard Brexit’ fears and Sterling weakened across the board during the US trading session. Investors  believe that the Prime Minister will announce that Britain will lose access to the lucrative European Single Market in order to give priority to reasserting full control of its borders to curb immigration.

Brexit fears and global market trends will tend to dominate sentiment in the short term. However, UK economic data will be important next week as there will be inflation, earnings and retail sales data releases which will all help shape expectations of February’s Bank of England meeting.

The European Central Bank (ECB) minutes from December’s monetary policy meeting revealed divisions among the council members and some trepidation due to political uncertainty in Europe. There was discussion of bond purchase scheme extensions, and some opposition to this (presumably German), suggesting that the scheme should be brought to a swift close. There were also some concerns over the risk of higher inflation, especially given higher oil prices. All of which means next week’s policy meeting is likely to be heated.

US jobless claims were lower than expected at 247k and continued the positivity surrounding the US labour market, although there were some concerns surrounding weaker freight shipments.

Fed officials produced much the same rhetoric as we’ve heard recently. Philadelphia Fed President Harker stated that three rate increases were realistic during 2017 if the US economy continues to perform well, and Chicago head Evans commented that three hikes were possible. Chair Yellen made no significant comments on monetary policy.

There is likely to be further choppy trading with the release of retail sales data today and position adjustments ahead of Monday’s US Bank Holiday (Martin Luther King Day).

Data to watch: 7am EUR German Wholesale Price Index. 1.30pm US Retail Sales MoM December, Retail Sales Control Group, Retail Sales ex Autos. 6pm US Baker Hughes Oil Rig Count.

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