No-Deal off the table; and still on the table…
Philip Hammond delivered the government’s Spring budget in the run-up to the No-Deal vote. UK GDP growth forecast for 2019 dropped to 1.2% from 1.6%, but lower borrowing forecasts and stronger wages growth negated any negative Sterling impact.
The market assumption in the run-up to voting was that ‘no-deal’ would fail to pass and the Pound benefitted from expectations of a softer version of Brexit or a delay. The House of Commons descended into chaos after an amendment stating that the UK should not leave the EU without a deal in any circumstances was passed. Despite being non-binding, the action reinforced expectations that a ‘no-deal’ would ultimately be blocked. Reports soon emerged of another meaningful vote next week. Softer Brexit expectations triggered strong Sterling purchasing pushing, the Pound to eight-month highs above 1.3350 on the Dollar and 1.1765 on the Euro.
This morning, Sterling has corrected to near 1.3250 on the Dollar ahead of another Parliamentary vote on extending Article 50. We have seen Sterling surge recently but volatility remains a significant feature given the political uncertainty and risks of a no-confidence vote or fresh elections.
Headline US durable goods orders data registered a 0.5% increase for January, above expectations of a 0.5% decline, although there was a slight miss on the underlying data with a 0.1% monthly decline which held the annual increase to 3.7%.
There was a firm reading for capital goods spending which suggested firm underlying confidence. The producer prices data was slightly below consensus forecasts with underlying prices increasing 2.5% over the year from 2.6% previously while the headline annual increase dipped to an 18-month low.
The data overall maintained expectations that inflation pressures were under control and that the Federal Reserve (Fed) could be very patient with monetary policy. German yields moved higher and the Dollar was unable to gain any traction, meaning the Euro continued to challenge resistance above the 1.1300 level. The US currency continued to lose ground last night with increased support for European currencies while commodity currencies also rallied and the Euro advanced to near 1.1350.
The Euro rallied slightly yesterday, with Eurozone industrial production increasing 1.4% for January, but the uncertainty surrounding the European political situation hampered any significant gains. German yields moved higher, testing the 1.1300 level versus the Dollar after increased support for commodity currencies, ending the session near 1.1350. Political turmoil still dominates, meaning any significant growth for the single currency was capped.
Data today sees Swiss economic forecasts, CPI numbers out of Germany and then Swiss producer and import prices. This is closely followed by French CPI numbers and then the UK’s 30-year bond auction. However, the vote in the House of Commons on Brexit and potentially extending Article 50 will dominate trading all day.
Data to watch:
02:00 CNY Retail Sales (YoY) (Jan)
07:00 EUR Harmonized Index of Consumer Prices (YoY) (Feb) (Germany)
12:30 USD Continuing Jobless Claims (Mar 1)
12:30 USD Initial Jobless Claims (Mar 4)
14:00 USD New Home Sales (MoM) (Jan)
19:00 GBP UK Parliamentary Vote on Brexit
21:30 NZD Business NZ PMI (Feb)
22:50 CAD BoC’s Wilkins speech